Energy Prices: Electricity Bills
 - Question

Baroness McIntosh of Pickering: To ask Her Majesty’s Government what assessment they have made of the rising costs of wholesale energy prices, and of their impact on household electricity bills.

Baroness McIntosh of Pickering: I beg leave to ask the Question standing in my name on the Order Paper and declare my interest as president of National Energy Action.

Lord Callanan: My Lords, the largest element of gas and electricity bills, which is wholesale costs, has increased significantly. The Government are committed to protecting customers, especially the most vulnerable. Households will continue to be protected throughout the winter by the price cap and through the warm Home discount and the winter fuel payment and cold weather payment schemes. A new £500 million household support fund has also been made available to councils to help the most in need over the winter.

Baroness McIntosh of Pickering: Given the record rise in wholesale gas prices and the fact that many fuels such as heating oil, coal and LPG, on which many rural dwellers depend, are not covered by the price cap, will the Government immediately lift the green levies on household bills, which account for 25% of the total, but ensure that energy companies pay for the green infrastructure from which they will ultimately profit, while targeting all available financial resources on those on the lowest incomes with the least efficient homes, to ensure that a further 1.5 million are not forced into fuel poverty?

Lord Callanan: Heating oil and LPG are of course not covered by any of the levies that my noble friend refers to—that is, they are separately controlled. There is a free market in them and they have not gone up nearly as much as gas prices. But as with every other utility, the energy companies pass through the cost of investment in the sector’s networks to end consumers, as well as the cost of additional energy infrastructure investment and environmental and social policies.

Lord Allen of Kensington: I declare my interest as chairman of Balfour Beatty and my other interests as in the register. When, back in July, I raised the issue of the high energy costs affecting the competitiveness of our steel industry, the Minister appeared to agree.  Yet since then, the Government have offered no support when energy costs have gone through the roof. This will impact on jobs and people’s lives throughout the country. As Gareth Stace put it well the other day, according to the newspapers, the energy crisis of today will be the steel industry crisis of tomorrow. What assistance are the Government currently giving to the steel sector and others that are highly dependent on energy consumption? More importantly, what are they planning to do not next year or next month but in the coming weeks to address this crisis?

Lord Callanan: Many of these energy-intensive industries are already freed from the cost of the emissions trading scheme by being issued with free permits but, beyond that, the noble Lord makes a good point. My colleague the Secretary of State is regularly in urgent discussions with all these industries and, of course, we are urgently seeking a solution across government as to how we can do something to help.

Lord Oates: The Minister will be aware of the bitter irony at this time of energy crisis that some £1 billion was spent in the last 12 months on paying wind generators not to generate energy. We need a proper energy policy that builds storage. When will the Government come forward with storage solutions that mean that this energy is generated and directed to green hydrogen, battery storage, compressed air or other forms or storage?

Lord Callanan: Of course, we do have a comprehensive energy policy. Many of the technologies that the noble Lord refers to are difficult and expensive, but we are funding research into a lot of them. The problem with electricity, as the noble Lord will be aware, is that it is very difficult and expensive to store on a large scale.

Lord Howell of Guildford: My Lords, it is obvious that in the short term, with soaring international gas prices, what can be done is understandably limited. Rescue support for heavy energy users obviously will help if it comes quickly, but should we not also consider temporarily suspending some of the heavy green surcharges, carbon penalties and the latest, rather poor idea, of taxing gas even further? For the medium term, have the real lessons been learned, namely that for an orderly and sustainable energy transition, we need more gas and electricity storage for back-up and swing supplies, a rapid sort-out of our faltering nuclear replacement programme, some coal-fired stations in reserve, and low rather than high home fuel prices to ease widespread hardship and prevent backlash?

Lord Callanan: We are taking a range of important steps to decarbonise the electricity system and to provide more homegrown electricity generation as our supplies from the North Sea dwindle. The problem with my noble friend’s argument is that providing more storage does not alleviate the high prices. Many European countries have much greater levels of gas storage, but their prices are even higher than those in the UK.

Lord Walney: My Lords, will the Government redouble their efforts to persuade our European partners to resist the siren voices from the Kremlin over Nord Stream 2, in the knowledge that President Putin’s regime will only try to exacerbate this cost-of-living crisis and not bring benefit to our or European citizens?

Lord Callanan: The noble Lord makes an extremely good point. We remain very concerned about the impact of Nord Stream 2 on European energy security and particularly on the interests of Ukraine. We will continue to raise our significant concerns about the project, defend the interests of Ukraine, support future arrangements and give a significant transit role to them.

Lord Grantchester: My Lords, Labour will make Brexit work. Can the Minister confirm that he believes that the measures of support are sufficient this winter to help those in fuel-poor households and those with poorly insulated homes?

Lord Callanan: We always keep these things under review, but I outlined the many steps that we are taking and if necessary, we will look further at what we can do to help.

Lord Roberts of Llandudno: My Lords, does the Minister agree that the foolhardy thing is that universal benefit has been completely demolished just when the poorest, most vulnerable people will be fighting to keep warm this winter? Will the Government not reverse that decision, and can they give us something fresh that will help the most vulnerable in a very harsh winter?

Lord Callanan: I outlined earlier the support mechanism that we already have in place: the warm home discount, the winter fuel payment, cold weather payments and an additional £500 million household support fund, which has been available to councils to help the most in need over the winter.

Baroness Jones of Moulsecoomb: The Scottish Parliament, through the Green Party Minister Patrick Harvie—

Lord Foulkes of Cumnock: Oh no.

Noble Lords: Oh!

Baroness Jones of Moulsecoomb: It has committed £1.8 billion to home energy efficiency measures. Given that this Government want to be world leading and they have a bit of a gap to fill, will they commit a proportionate amount—bearing in mind that there are 10 times more homes in England—of £18 billion?

Lord Callanan: I have not had a chance to meet the noble Baroness’s colleague yet. I was supposed to meet him a couple of weeks ago, but the meeting was cancelled. I look forward to discussing these important matters with him. As the noble Baroness will be aware, we are already spending considerable sums on home insulation and heating upgrade measures—some £1.3 billion over the last year. Of course, I cannot  predict what might happen in the Chancellor’s spending review, but we are already investing considerably in home insulation measures.

Lord Mackay of Clashfern: I wonder who is responsible for this unprecedented rise in the price of wholesale gas?

Lord Callanan: The noble and learned Lord is tempting me. Gas is traded in international markets, so the biggest factors influencing prices are global trends in supply and demand. Higher wholesale gas prices have been seen internationally since 2021.

Viscount Waverley: My Lords, is there a correlation between consistency of supply from certain national gas producers and the state of some bilateral relations, with the EU generally and indeed further afield, that might be inhibiting the continuity of supply? If so, are ambassadors exploring strategy options with this in mind, and would the Minister care to give us some specific examples?

Lord Callanan: Security of supply is of course absolutely vital. The UK derives this through its diversity of suppliers and by reducing reliance on any single source. In addition to our considerable domestic production, we import gas from Norway, Belgium, the Netherlands and further afield, via LNG terminals. Of course, through our ambassadors we are in regular contact with our energy partners, including Norway, the EU Commission and the International Energy Agency.

Lord West of Spithead: My Lords, for several years a number of us have been banging on about the looming national shortage of electricity. My concerns are that our present nuclear power stations are going out of service at an increasing rate and that no nuclear sites are being built or planned, yet they are absolutely crucial for the provision of round-the-clock, weather-independent, low-carbon electricity. We have all seen, as we expected, that renewables alone do not cut the mustard when we really need it. Does the Minister agree that there is an urgent need to complete Hinkley Point C and to get the final investment decision for Sizewell C? When will the decision to go ahead be made?

Lord Callanan: I agree with the noble Lord. It has been a mistake and, indeed, it was a mistake for his party to announce a moratorium from 1997 on any new nuclear development, which lasted for 10 years. We need to get on fast with building new nuclear capacity, and we are doing just that. It will form a vital part of our baseload electricity demand.

Nutrition for Growth Summit
 - Question

Lord Collins of Highbury: To ask Her Majesty’s Government when they will announce their strategy for the Nutrition for Growth Summit in Tokyo in December.

Lord Ahmad of Wimbledon: My Lords, the United Kingdom continues to work closely with the Government of Japan to make sure that the 2021 Tokyo Nutrition for Growth Summit generates meaningful action by Governments, donors, businesses, the UN and civil society. A decision on a UK commitment and wider strategy will be made following the conclusion of the spending review.

Lord Collins of Highbury: My Lords, I co-chair, with David Mundell MP, the Nutrition for Growth APPG. At the first summit in 2013, the UK played a pivotal leadership role. For this summit, the International Coalition for Advocacy on Nutrition, which includes Save the Children, UNICEF and other important NGOs, set out recommendations for the FCDO at Tokyo in its document Time for Action. I strongly recommend that the noble Lord reads that document because its key recommendation is that the Government should renew their commitment to reach 50 million people with nutrition interventions by 2025. Does the noble Lord agree?

Lord Ahmad of Wimbledon: My Lords, I assure the noble Lord that I have read the documents in advance of this Question. Indeed, the recommendations made by ICAN are very much part of our thinking as we look to complete the spending review. I cannot give a specific commitment, but I recognise the work of the noble Lord and my right honourable friend David Mundell in this respect. We will work very constructively to ensure that we remain committed to this important priority.

Baroness Jenkin of Kennington: My Lords, of course it is not only the UK Government whose job it is to end global malnutrition; others have roles to play, and we will be effective only if we work in partnership with like-minded allies. Which Governments are the FCDO speaking to ahead of the summit to ensure that our strategy is aligned with that of our closest allies, in particular the United States?

Lord Ahmad of Wimbledon: My Lords, my noble friend raises a very important point. I assure her that we are talking to all our allies. Indeed, this has been part of our feature—talking about tackling, for example, famine, as part as our leadership under the G7 agenda. I hope to travel to the United States shortly to meet some of the new members of the State Department team and this will certainly feature in those discussions as well.

Baroness Boycott: My Lords, I remind noble Lords that the ODA specific nutrition spend from 2016-19 was almost £110 million; this year it is projected to be only £37 million. Does the Minister not agree that maintaining good nutrition is one of the easiest and best ways to ensure a healthy population? This cut is not just drastic but extremely short-sighted. Once again, food has been penalised over other areas. Can the Minister tell the House when this budget will be restored and, indeed, increased to £120 million, which is what global experts recommend?

Lord Ahmad of Wimbledon: My Lords, I can assure the noble Baroness and your Lordships’ House that this remains an important part of our thinking. As I said in response to the noble Lord, Lord Collins, I cannot give a financial commitment at this stage because of the ongoing spending review, but I agree with the noble Baroness that the investment we have made over the current programme has seen great benefits, including on my patch. For example, in Bangladesh we have seen real achievements on the nutrition agenda.

Baroness Chakrabarti: My Lords, estimates suggest that we are currently on course to cut overseas funding for nutrition specifically by as much as 70%. That will inevitably cost lives and devastate the lives of millions of children in particular. Will the Government please take the opportunity of the summit to reconsider, if not reverse, that decision?

Lord Ahmad of Wimbledon: My Lords, obviously a decision was taken on the reduction of the overall ODA spend but, as I have already said, we are working constructively with key partners and are supportive of the summit that will take place in Japan in December. Once the spending review has been completed, I will be able to share with your Lordships the nature of the exact spend. There are various streams to this funding, including the match funding. Again, on reviewing this area, I have seen the net benefit of how UK funding helps support generate further funding, including from the private sector.

Baroness Brinton: My Lords, The Power of Nutrition charitable foundation says:
“The Summit is a unique opportunity to accelerate financial commitments … With concerted, bold actions … from all sectors, we can make 2021 the year where progress on nutrition is not reversed but accelerated”.
Can the Minister say whether the Government, under their chairmanship of G7, will set an example and increase their aid budget for nutrition to £120 million, reversing cuts made by the Chancellor earlier this year?

Lord Ahmad of Wimbledon: My Lords, I believe I have already answered part of that question but let me reassure the noble Baroness that we are leading on this issue, including in discussions with G7 partners.

Baroness Sugg: My Lords, my noble friend is, of course, aware of the significant cuts to the aid budget but implementing the OECD policy marker for nutrition at programme design stage will cost the Government nothing and make the remaining aid—what is left for nutrition—much more impactful. Do the Government have any plans to do this by creating nutrition objectives across broader development programmes?

Lord Ahmad of Wimbledon: My Lords, my noble friend speaks with great insight and expertise. Let me assure her that the Government have worked with other key donors to promote adoption of the new OECD nutrition policy marker. Indeed, the UK’s 2019 ODA spend data that was published recently  included the nutrition policy marker for the first time. She makes an important point, and it is very much part of our thinking.

Lord Krebs: My Lords, are the Government prepared to show global leadership by tackling the massive problem of malnutrition in this country, in particular by bringing forward a food Bill in response to the recent Dimbleby report?

Lord Ahmad of Wimbledon: Speaking to foreign policy, it is always important that, when we stand up and raise issues of prioritisation on the international stage, we do not forget what is happening at home. The noble Lord makes an important point, which I will discuss on my return with colleagues across other departments.

Baroness Stuart of Edgbaston: My Lords, following on from the question from the noble Baroness, Lady Sugg, is the FCDO looking at its own key performance indicators when it assesses mortality rates for under-fives? Does it give a high importance to nutrition?

Lord Ahmad of Wimbledon: My Lords, the noble Baroness raises an important point. I assure her that the issue of KPIs, in terms of our development spend, is consistent across many areas of budget. I used the example of Bangladesh earlier. We have seen infant mortality fall there from the direct support we have provided on various programmes, particularly among those under the age of five. That shows the real benefit of our investment in such parts of the world.

Lord McConnell of Glenscorrodale: My Lords, the cruel and short-sighted cuts to official development assistance already implemented will have a significant impact on nutrition and other life-saving programmes. That budget is now further threatened by the suggestion that the Chancellor might include IMF special drawing rights against the ODA budget rather than as additional aid. Can the Government give a cast-iron guarantee that there will not be further cuts to official development assistance programmes as a result of this proposal from the Chancellor and that the rest of the Government will stand up to him and this time say no?

Lord Ahmad of Wimbledon: My Lords, as the noble Lord may have noticed, we have a new Foreign Secretary. One of the areas that I know my right honourable friend has prioritised is to look again at the issue of the aid budget. The noble Lord makes an important point about SDRs and I can assure him that we are engaging in very robust discussions with the Treasury.

Lord McFall of Alcluith: My Lords, all supplementary questions have been asked. We now move to the next Question.

UK Fashion Industry
 - Question

Earl of Clancarty: To ask Her Majesty’s Government what support, if any, they intend to provide to the United Kingdom fashion industry, in particular to support its work in European Union member states.

Lord Parkinson of Whitley Bay: My Lords, the Government are fully committed to supporting our world-leading fashion industry. We are operating export helplines, running online seminars with policy experts and offering business support through a network of 300 international trade advisers. We are also investing millions of pounds in customs intermediaries and have launched the export support service for UK businesses. We engage closely with the fashion industry, including through the DCMS-led working group on touring, to support the sector to extend its international impact.

Earl of Clancarty: My Lords, I welcome the noble Lord to his new post. The fashion industry is hugely valuable culturally and economically, yet it faces serious Brexit-related concerns in manufacturing—garment workers should be added to the shortage occupation list—the debilitating cost and red tape of importing materials and exporting goods, and immobility. With visas, work permits, carnets and cabotage, it shares many of the same problems as the music industry. Is the Minister aware that there are now real difficulties getting models to shoots in Europe, the most valuable market, fast enough? How are the Government addressing this multiplicity of concerns, knowing that freelancers and smaller companies will be the first to suffer?

Lord Parkinson of Whitley Bay: The DCMS-led working group is addressing the multiplicity of issues which the noble Earl mentions. The shortage occupation list is of course a matter for the independent Migration Advisory Committee. When it last looked at this, it found that occupations in garment manufacturing did not warrant inclusion, but it will be for that body to keep that under review. The working group on touring includes representatives from across the creative sectors, including the chief executive of the British Fashion Council. We have addressed a number of the sector’s concerns already, such as by confirming that fashion professionals from the UK will not be double-charged for social security contributions, but that engagement and work continues.

Baroness Bull: My Lords, the challenges of Brexit for the fashion sector and the wider creative industries have been clearly enumerated in my noble friend’s Question, but we are repeatedly told that the agreement is a done deal and that unpicking one part would unravel the rest—ironically, an image drawn from fashion. Can the Minister explain why it is now possible for government to demand changes to one part of the UK’s agreement with the EU but not  possible to reopen a considerably less contentious part and thereby protect the contribution of the creative sectors to UK jobs and to economic success?

Lord Parkinson of Whitley Bay: My Lords, the European Union was very clear in its negotiations and, alas, did not accept the proposals which the UK put forward during them. That is why we are discussing bilaterally with member states these matters and the implications which she and the noble Earl mentioned and providing as much clarity as we can to the industry, including through specific landing pages on GOV.UK to help it navigate the new arrangements.

Lord Flight: My Lords, people working in the fashion sector, as in the creative industries more generally, often have irregular working patterns. Do the Government appreciate that and how have they taken this into account in the visa rules they apply to people working in these important fields?

Lord Parkinson of Whitley Bay: My noble friend makes an important point. On Monday, we launched a dedicated temporary worker route for creative workers, meaning that creative and sporting workers are no longer grouped together in one immigration route. The temporary work route permits a gap of up to 14 days between engagements. In April, the Home Office introduced a mechanism to stop the clock when calculating that 14-day period, so that any time spent outside the UK is not counted towards it. That new arrangement better reflects the working practices of people in the creative sector and, I am glad to say, has been well received.

Baroness Donaghy: My Lords, the Government were silent on the impact of Brexit on UK services. The sin of omission means that service professionals were not given the full picture. The fashion industry is worth £35 billion and has been seriously impacted, as outlined by the noble Earl, Lord Clancarty. Will the Government try to reach an agreement or a declaration with the EU on visa waivers? As has been said by the noble Baroness, Lady Bull, this would not require a renegotiation of the TCA. Finally, will the Government get a move on with creating craft and design T-level courses to help fill the thousands of vacancies at UK factories?

Lord Parkinson of Whitley Bay: Regrettably, my Lords, we do not believe that a visa waiver is viable. During the negotiations last year, the European Commission argued that EU-wide visa arrangements would have to include binding non-discrimination clauses committing us to waiving visit visas for current and future member states of the EU, which is not compatible with the commitment in the manifesto, on which the Government were elected, to take back control of our borders. Of course, our new immigration system allows us to have and to continue our very generous offer to people working in the creative industries from all around the world—they are very welcome here in the UK.
On T-levels, I am pleased to say that the content for the craft and design T-level has been developed by employers. The appointed awarding organisation is  now developing the technical qualifications and assessments, and it will be available for first teaching from September 2023.

Lord Foster of Bath: My Lords, I too congratulate the Minister on his appointment. He will be well aware that the Government are currently considering introducing an international rather than a national intellectual property exhaustion scheme. Many of our very successful exporting creative industries, including fashion, believe that this move could be devastating, some even describing it as an existential threat. Do the Government share their concerns?

Lord Parkinson of Whitley Bay: Sadly, the negotiated outcome which the UK proposed with the EU was not something it was willing to agree in the negotiations before we left the European Union, but the Intellectual Property Office is considering concerns such as those which the noble Lord raises to see whether any changes can be made to the UK’s design systems to address the issue in the future.

Lord Vaizey of Didcot: My Lords, I echo the congratulations offered to my noble friend on his new appointment on the Front Bench. We look forward to seeing him on the front row of many fashion shows at London Fashion Week next week, where he will be an adornment and perhaps even a distraction.
My noble friend will know that many highly successful domestic fashion companies manufacture in this country. They depend on high-net worth foreign individuals coming here and buying their stock. They used to come here because they could reclaim their VAT. The Chancellor has of course got rid of this scheme. Will my noble friend brief himself on the impact this has had on domestic fashion companies and keep engaged with the Treasury, as does our Business Secretary, on this important issue as it develops?

Lord Parkinson of Whitley Bay: I thank my noble friend for his warm words of welcome. He knows better than most how lucky I am to have the job I have just begun.
The issue of VAT is one that my noble friend has campaigned on, both in your Lordships’ House and in another place. We did not have the choice of maintaining the VAT retail export scheme as it was; the choice was between extending it to EU residents, at significant cost to the UK taxpayer, or removing it completely as WTO rules mean that goods bound for different destinations must be treated the same. I will of course look into this further, as he suggests, but my understanding is that fewer than 10% of visitors to the UK use the VAT retail export scheme and that extending it to the EU could increase total costs by up to £1.4 billion a year.

Baroness Wheatcroft: My Lords, following on from the question from the noble Lord, Lord Vaizey, would the Minister inquire whether it was the ability of HMRC to deal with the extra paperwork that it felt would be generated by extending the scheme that actually put paid to it, and whether that is why 40,000 jobs are under potential threat?

Lord Parkinson of Whitley Bay: I will certainly follow up with HMRC the point that the noble Baroness raises. I should add that tax-free shopping is still available in store when goods are posted to overseas addresses. People can still avail themselves of that.

Baroness Merron: My Lords, I welcome the Minister to his place and wish him all the very best. While the fashion and textile industry is a leading contributor to our economy, an engine room for jobs and a standard-bearer for British style and reputation, one could be forgiven for thinking it has been overlooked. Following the warning issued by ASOS and others about the impact of supply chain issues, how would the Minister ensure urgent support to the industry to overcome HGV driver and skilled worker shortages? Looking to the future, what plans are there for a major skills boost, so that we can see more and better clothing made for sale both here and abroad?

Lord Parkinson of Whitley Bay: The sector certainly has not been forgotten. We continue to work very closely with the fashion industry to understand the challenges it faces and to identify new opportunities to develop it. It is a world-leading sector, of which we are very proud. I mentioned the working group which includes the chief executive of the British Fashion Council; that is just one of many ways we have engaged with the sector. My noble friend Lord Frost chaired the Brexit business task force on fashion and textiles in May, we have two trade advisory groups from DIT, and we have hosted a number of online seminars. We continue to engage with the industry, and I look forward to working with the noble Baroness and others as we do so.

Lord McFall of Alcluith: My Lords, the time allowed for this question has elapsed.

UK Property Ownership:  Overseas Jurisdictions
 - Question

Lord Wallace of Saltaire: To ask Her Majesty’s Government what plans they have to increase the transparency of property ownership in the United Kingdom following media reports of the use of overseas jurisdictions to hide the identity of the beneficial owner.

Lord Callanan: My Lords, the Government remain committed to establishing a new beneficial ownership register of overseas entities that own UK property in order to combat money laundering and achieve greater transparency in the UK property market. The register requires primary legislation for it to be established, and the Government will legislate when parliamentary time allows.

Lord Wallace of Saltaire: Does the Minister recognise the complete contradiction between asserting complete sovereignty over Northern Ireland and failing to reassert sovereignty over who owns what land and property in the United Kingdom, as well as failing to prevent dirty money flowing in from authoritarian states? Why have the Government not yet found time to prioritise legislation that enables British citizens to know who owns what?

Lord Callanan: I think these are two completely separate issues that the noble Lord is confusing. As I said, it remains a priority for the Government. We have already published a draft Bill, we have carried out pre-legislative scrutiny on the matter and we will legislate as soon as parliamentary time allows.

Lord Sikka: My Lords, the UK itself is a barrier to transparency. Any crook from anywhere in the world can form a company here without any checks on the authenticity of directors, and can conceal illicit financial flows. The Government have had 11 years to reform Companies House but have failed to do so. Can the Minister explain why reform of Companies House has not received greater priority?

Lord Callanan: We are already investing £20 million in the reform of Companies House to provide many of the services the noble Lord refers to, but many of the reforms also require primary legislation and we will legislate when we can. The noble Lord is not correct in his basic assertion: the UK’s anti-money laundering regime was reviewed by the Financial Action Task Force and the UK achieved the best rating of any country assessed so far in the round of evaluations.

Baroness Ludford: My Lords, Guardian reporter Luke Harding, involved in analysing the leaked Pandora papers, has said, “There is a message for the super-rich here: don’t hide your cash under a palm tree because, sooner or later, an investigative journalist will find it.” That is just as well, because the Government seem very relaxed about dirty money buying up London. Why have only four unexplained wealth orders—McMafia orders—been issued since 2018 and none since July 2019? Is the Minister relaxed that a government assessment last November concluded that money laundering through the UK had actually increased since 2017?

Lord Callanan: As I just said in the previous answer, we are absolutely not relaxed about this and we are determined to root out any financial chicanery and money laundering where possible. Investigations in which a UWO may assist are likely to be complex: application to a court for a UWO may take many months or years, but enforcement authorities continue to seek opportunities to utilise unexplained wealth orders in appropriate cases. These are difficult and complex matters.

Baroness Falkner of Margravine: My Lords, the noble Lord mentions the establishment of the register, which is long overdue. Will he tell the House what merit he finds in our continuing to support the  existence of anonymous shell companies? As the Tax Justice Network has just said, nobody behaves better when they cannot be seen.

Lord Callanan: If the noble Baroness means shell companies in British Overseas Territories and others, they are also convinced of the need for transparency and we continue to press them to provide full ownership and transparency details on these companies.

Lord Bassam of Brighton: My Lords, it is hard to take seriously the Government’s claim that they aim to lead the global fight against illicit finance, or the register that the Minister has referred to. The Government claim they have impressive controls, but it is now three years since their consultation ended on the draft registration of overseas entities Bill, so can the Minister tell the House what plans they have to tackle our high-risk score, stop money laundering and protect the UK against terrorist financing?

Lord Callanan: As I said, the Financial Action Task Force that we established got the best rating of any country assessed so far in the round of evaluations in countering money laundering. We are opposed to it and we will do all we can to fight it, as noble Lords will want us to do. We intend to legislate on the registration of beneficial ownership and will do so as soon as parliamentary time allows.

Lord Fox: My Lords, as we all know, “legislate when time allows” is a phrase to kick things into the long grass. The evidence to date is that this item is nestling very deep in the long grass. The Government have had the time and the opportunity to bring forward legislation, so can the Minister be clearer to your Lordships’ House why they have not done so?

Lord Callanan: It is absolutely not an intention to kick it into the long grass: it remains a priority, which is why we published the draft Bill, why we invited pre-parliamentary scrutiny and why we have acted on many of the recommendations that were issued during that time, but there remains a lot of pressure on the parliamentary timetable and we will legislate when time allows.

Lord Harries of Pentregarth: One hundred and thirty countries have now signed up for a global tax arrangement with a minimum tax threshold of 15%. What will Her Majesty’s Government’s attitude be towards tax havens where the tax is very much lower than that and which fail to sign up to this regime? In particular, what will their attitude be to UK property owners who register their property with companies in such tax havens?

Lord Callanan: The Chancellor continues to work with other jurisdictions to expose many of these havens and to increase the tax take. Only recently, the G7 Finance Ministers agreed a minimum corporation tax that has been implemented in many countries across the world. So, the Chancellor and HMRC need no lessons to try to increase the tax take.

Baroness Donaghy: My Lords, we are talking about £170 billion-worth of property owned offshore. Think what the tax revenue could buy to sort out the energy crisis, the social care crisis and the low pay crisis. Will the Government bring back some legislation, or have they listened to the society for the protection of oligarchs? Ministers themselves claim that 75% of the property industry supports tougher action against foreigners who use the UK to wash their dirty cash. Is it not time that the Government made some parliamentary time for this?

Lord Callanan: Again, the noble Baroness is confusing different issues. Having hereditary beneficial ownership—which we are greatly committed to and would be, I think, a great step forward—provides transparency. It does not, of course, itself increase the tax take. But she can be convinced that HMRC is very seized of this issue and is intending to increase the taxation take where it can possibly do so. Since 2010, the UK Government have secured and protected over £250 billion in tax revenue that would otherwise have gone unpaid, including an additional £3 billion from those trying to hide money abroad.

Baroness Bennett of Manor Castle: My Lords, the Minister has said “when parliamentary time allows” a number of times. But, of course, your Lordships recently passed the Financial Services Act. Transparency International recently analysed 400 corruption and money laundering cases and identified 600 UK businesses, institutions and individuals that have helped those corrupt cases. Does the Minister acknowledge that the Financial Services Act, so recently passed, is inadequate in regulating the actions of our businesses and needs to be strengthened?

Lord Callanan: I am not familiar with the details of that Act, but, as I said and will repeat again: the register of beneficial ownership remains a priority; the role of Companies House remains a priority; and we will come to this when parliamentary time allows.

Lord Foulkes of Cumnock: Could the Minister explain why we should not come to the conclusion that the reluctance to take action on this and other tax evasion and avoidance is because of the very generous donations given by Russians to the Tory party and Tory MPs?

Lord Callanan: The noble Lord would be incorrect if he came to that conclusion. HMRC and the Chancellor have taken robust action against tax avoidance and evasion and will continue to do so. Many of the complaints I get from people about HMRC are that it is too aggressive in pursuing individuals and companies for its tax take. So, it will take no lessons from the noble Lord in wanting to increase its tax take.

Lord Alton of Liverpool: My Lords, the All-Party Parliamentary Groups on Hong Kong and on Uyghurs, on which I serve as vice-chair, have drawn the Government’s intention to the impunity of those such as Carrie Lam and Chen Quanguo, involved in the destruction of Hong Kong’s democracy and the Uighur genocide. Will the Minister instigate a UK asset audit  of such officials and the families of those responsible for these depredations, and accelerate scrutiny of Chinese-UK property developments, such as Nine Elms in south London? This has borrowed £430 million from banks, potentially leaving us vulnerable to collateral damage from the Evergrande crisis, with liabilities—in a re-enactment of the South Sea bubble—now topping some £2 billion.

Lord Callanan: The financing of development activity is, of course, a commercial decision and the Government do not intervene in those investments. But, in March 2021, in a co-ordinated effort with the European Union, the US and Canada, the UK imposed sanctions, including travel bans and asset freezes, on several Chinese officials in response to the human rights abuses against the Uighur community. I assure the noble Lord that we continue to monitor the situation. The UK has introduced global human rights sanctions regimes, complementing our anti-money laundering measures, including those implicated in human rights abuses, ensuring that they cannot utilise funds that have been obtained illicitly in the UK.

Lord McFall of Alcluith: My Lords, that concludes Oral Questions for today.

Northern Ireland Protocol
 - Private Notice Question

Baroness Ludford: Asked by Baroness Ludford
To ask Her Majesty’s Government, further to the speech made by Lord Frost on 12 October 2021, what plans they have to change the Northern Ireland Protocol.

Lord Frost: My Lords, the objective of the Northern Ireland protocol was to support the Belfast/Good Friday agreement. It is now undermining it. I set out our proposals to change these arrangements to this House and in a Command Paper on 21 July. We expect written proposals from the Commission today in response to the current difficulties. I hope that we can resolve this situation by agreement but, if we are to do so, we will need to see significant change to the current arrangements.

Baroness Ludford: My Lords, I want to ask the Minister two questions. First, apart from with the DUP, what consultation have the Government undertaken in Northern Ireland to lead the Minister to threaten to breach the protocol? The chief executive of Manufacturing NI says that
“no one in business has raised the issue of the ECJ oversight as a problem … It is purely a political and sovereignty issue, and not a practical or business issue.”
Does ideology trump pragmatism and business in Northern Ireland?
Secondly, the Minister has trashed the political credibility of the Government and, indeed, its electoral legitimacy, given that the 2019 election was won on the basis of “Get Brexit done” triumphalism about the withdrawal agreement and the protocol. However, he is also trashing the UK’s international reputation. In the words of legal expert Professor Mark Elliott,
“the UK, if it wishes to be part of the rules-based international order, cannot pick and choose the international legal obligations that it honours”,
and to believe otherwise is “legally illiterate”. Does that bother the Minister?

Lord Frost: My Lords, there is quite a lot in that question but I will try to deal with the two points. We talk to people of all opinions across the spectrum of political opinion in Northern Ireland. In doing so, I personally have heard quite a lot of concern about the imposition of European Union law in Northern Ireland without democratic consent; of course, the Court of Justice stands at the apex of that system.
On the second question, we set out our approach in the Command Paper. I do not think that there is much more to say. We have been clear that the threshold for using Article 16 has passed; Article 16 is a mechanism in the protocol whose use is legitimate if the circumstances require it. We would prefer to find a solution by consensus but Article 16 is there.

Baroness Chapman of Darlington: My Lords, I welcome the Minister back from his brief stop in Portugal yesterday. I note that your Lordships’ House was sitting then; we too would have appreciated hearing from him as he announced his new text.
Although we welcome the opportunity to hear from the Minister this afternoon, it is a shame that this Question is taking place at 3.45 pm, given that the EU’s proposals for amending the protocol are due to be published in just two hours’ time. Can the Minister confirm that he will consider the EU’s proposals in good faith, and that the Government will engage constructively in finding solutions to protect livelihoods and communities in Northern Ireland? In his speech yesterday, the Minister said that he has drafted a new protocol. When will we see the legal text? Given the direct importance of this process for the people of Northern Ireland, has he consulted Northern Ireland Ministers on his text?

Lord Frost: My Lords, my speech in Lisbon yesterday covered much more than the Northern Ireland protocol. I am sure that the noble Lords who have read it have seen that it was an attempt to set out our wider relationship with the European Union; the protocol policy was as set out in the Command Paper. I agree that we are looking forward to getting the proposals from the Commission later today. Obviously we will look at them positively and constructively; I am sure that we will want to discuss elements of them in more detail. We very much want to get into an intensive talks process on those proposals, as well as on the proposals we sent. As the noble Baroness points out, we have sent a draft of the legal text to the Commission. It is a negotiating document at the moment but, of course, I expect that we will make it public if that seems to be useful to the process in future.

Lord Lamont of Lerwick: My Lords, would the noble Lord confirm that more than 200 GB firms have stopped supplying goods to Northern Ireland and that the Northern Ireland protocol is just not working satisfactorily? Secondly, as regards accusations that we are going against the rules-based international order and the rule of law, is it not a fact that Article 13(8) of the protocol itself envisages that it could be succeeded by other agreements?

Lord Frost: My Lords, my noble friend is absolutely correct that 200 firms have ceased trading with Northern Ireland this year, including some quite significant ones. The existence of this customs process between Great Britain and Northern Ireland is at the heart of some of the problems we are experiencing with the protocol. My noble friend is also right that Article 13(8) of the protocol provides for successor arrangements. This was envisaged and explicitly written into the protocol when we negotiated it. It reflects the fact that it is not unusual in any way to renegotiate or supersede international agreements, which is what we hope to do in this process.

Lord Anderson of Ipswich: My Lords, the Minister said in Lisbon that we are being asked to apply EU law in part of our territory without our consent. Article 5 of the protocol provides that significant parts of EU law,
“shall apply to and in the United Kingdom in respect of Northern Ireland”.
Having agreed that protocol, how can the Minister say that this law applies without our consent?

Lord Frost: My Lords, there is, of course, a difference between what is in an international legal instrument and what happens day to day, as I am sure is well understood. The political difficulty being created in Northern Ireland is because individual legal instruments, which come out in profusion from the European Union day to day, are applied automatically in Northern Ireland without any sort of process. That system is not sustainable, which is why these governance arrangements need to change to bring them more in line with democratic norms elsewhere. We need to find a solution that everybody in Northern Ireland can get behind and which they think represents their interests.

Lord Mackenzie of Framwellgate: My Lords, this Question is about trust and reputation. The admission by the Northern Ireland Secretary last September in another place that his Brexit Bill broke international law in a very specific and limited way was denounced by Members of this House from all parties, including the noble Lord, Lord Howard, and others. It led to a tit-for-tat reaction from the EU that it would unilaterally reject the protocol and, later, that it might not ratify the withdrawal agreement. Can the Minister tell your Lordships from where this reputation-destroying tactic by the UK Government of abandoning the rule of law emanated?

Lord Frost: My Lords, these matters were well debated at the time. The then UK Internal Market Bill is now a very good Act to protect the integrity of the single market of the UK. It does that very well.  I am now looking forward. We are trying to find solutions to a problem that we hoped would not arise but which has now arisen because of the relatively insensitive way in which we have been forced to implement this protocol. We need to find a solution that everybody in Northern Ireland can get behind, which provides a better balance and which fully supports the Belfast/Good Friday agreement.

Lord Newby: My Lords, in his speech yesterday, the noble Lord said that
“we are constantly faced with generalised accusations that we can’t be trusted and are not a reasonable international actor.”
Why does the noble Lords think that this is now the case?

Lord Frost: My Lords, I asked myself that question implicitly in the speech and I still do not really know the answer. I think our behaviour since the start of the year as a fully independent country has been extremely constructive internationally. For example, we have established our own sanctions regime; we have been very proactive in it; we have welcomed citizens of Hong Kong to this country; we have been among the first to raise questions about the treatment of the Uighurs; and we have been the first to bring in sanctions against Belarus. I think we have been extremely constructive in this process over the years. I am sorry that from time to time we have faced accusations that we do not behave accordingly, but I do not think they are justified by the facts.

Lord Dodds of Duncairn: My Lords, issues of sovereignty and democracy lie at the heart of the problems with the Northern Ireland protocol. Does the Minister agree that we may solve some practical issues, and the EU will produce proposals on that later, but unless we do away with the issue of laws being made for part of the United Kingdom in the 21st century without any say—yea or nay—of elected representatives of Northern Ireland, it will store up future problems of divergence and diversion of trade? Therefore, issues such as the ECJ and the democratic deficit need to be addressed if there is to be a permanent solution to the problems of the protocol.

Lord Frost: I very much agree with the thrust of the noble Lord’s question. We would like to find a permanent solution to this problem, a solution that everybody can get behind in Northern Ireland and beyond and that represents everybody’s interests. That is why partial solutions that tinker around the edges of the existing arrangement will not do the job. The question of sovereignty is fundamental. We have to find solutions that are consistent with UK sovereignty in Northern Ireland and, to come back to it, that support the Belfast/Good Friday agreement, which is fundamental to politics in Northern Ireland.

Baroness Ritchie of Downpatrick: My Lords, reports about the EU’s proposals, which are to be announced later this afternoon, suggest that they contain a lot of opportunities and solutions. Does the Minister agree that moving goalposts from positions which the British Government agreed with the EU and setting new red lines around the removal of the  European Court of Justice, which is not a problem for Manufacturing NI, the leading law firms of Belfast and academics, keeps people divided and undermines businesses in Northern Ireland? Will the Minister ensure that this stops now?

Lord Frost: My Lords, we wait to see what the EU proposes to us later this afternoon. We will look at those proposals very positively and, I hope, constructively. If there are elements in them with which we can work, we will seek to do so. I do not agree that we have been moving the goalposts. We have been clear on our position since we put forward the Command Paper in July. Although other people may use the words “red lines”, I never do. We are beginning a negotiation. We have a track record of reaching successful outcomes in negotiations, despite the predictions that we would not. I hope that we will do so again this time.

Lord Cormack: My Lords, as my noble friend bears some responsibility for this protocol, will he use all his diplomatic gifts, acquired during his years in the Foreign Office, to ensure that we emerge from this difficulty with friends in Europe—those who used to be our partners—and that European friendships at this time of world instability are strengthened, not weakened? Will he be the diplomat?

Lord Frost: My Lords, my noble friend makes an extremely good, apposite point. I am sure he has read my speech made in Lisbon yesterday because I put great emphasis on the need to resolve the current problems, move forward and build friendships in Europe. We have too much in common to have unnecessary division over such questions. We need to resolve them. The western alliance has major interests and major problems to face around the world. We need to stick together and do that. That is why we want to resolve this question, so that we do not have to come back to it and can move on.

Baroness Garden of Frognal: My Lords, I am afraid that the 15 minutes allowed for this Question have now elapsed.

Communications and Digital Committee
 - Membership Motions

The Senior Deputy Speaker: Moved by The Senior Deputy Speaker
That Lord Foster of Bath be appointed a member of the Select Committee, in place of Baroness Grender.
That Lord McAvoy be appointed a member of the Select Committee, in place of Baroness Corston.
That Lord Sharpe of Epsom be appointed a member of the Select Committee, in place of Baroness Barran.
Motions agreed.

Police, Crime, Sentencing and Courts Bill
 - Order of Consideration Motion

Baroness Williams of Trafford: Moved by Baroness Williams of Trafford
That it be an instruction to the Committee of the Whole House to which the Police, Crime, Sentencing and Courts Bill has been committed that they consider the Bill in the following order:
Clauses 1 to 10, Schedule 1, Clause 11, Schedule 2, Clauses 12 to 42, Schedule 3, Clause 43, Schedule 4, Clauses 44 to 47, Schedule 5, Clauses 48 to 51, Schedule 6, Clauses 52 to 54, Clauses 62 to 67, Schedule 7, Clauses 68 to 74, Schedule 8, Clause 75, Schedule 9, Clauses 76 to 98, Schedule 10, Clauses 99 to 101, Schedule 11, Clauses 102 to 128, Schedule 12, Clause 129, Schedule 13, Clause 130, Schedule 14, Clauses 131 to 135, Schedule 15, Clause 136, Schedule 16, Clauses 137 to 157, Schedule 17, Clauses 158 to 162, Schedule 18, Clauses 163 to 169, Schedule 19, Clause 170, Clauses 55 to 61, Clauses 171 and 172, Schedule 20, Clauses 173 to 177, Title.
Motion agreed.

Environment Bill
 - Third Reading

Lord Goldsmith of Richmond Park: My Lords, I have it in command from Her Majesty the Queen and His Royal Highness the Prince of Wales to acquaint the House that they, having been informed of the purport of the Environment Bill, have consented to place their interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.

Motion

Lord Goldsmith of Richmond Park: Moved by Lord Goldsmith of Richmond Park
That the Bill do now pass.

Lord Goldsmith of Richmond Park: It is my pleasure and privilege to be responsible for Third Reading of the Environment Bill in this House today. Although the process has often been challenging, it has also been productive, thanks to the collaboration  and expertise of your Lordships’ House. The benefits of the Bill will be felt by future generations, both in the UK and internationally, as we strive to leave the environment in a better place than how we inherited it.
Here is a Bill that will transform our environmental governance in a way that is better suited to our needs and seizes the opportunities of our exit from the European Union. It will set targets for fine particulate matter, the most harmful air pollutant, and—a world-first—to halt the decline in species by 2030. It establishes an office for environment protection, an independent body that will hold us to account in meeting these ambitious targets.
The Bill takes action across the product life cycle, with resource and waste measures that will advance us towards a circular economy, extending the responsibility on to the polluting producers, while empowering consumers to make more sustainable choices. It will improve our air and water quality to ensure that generations both present and future are not at risk of ill health from pollution to these most basic and crucial elements in life.
Here is a Bill that delivers not only protections for our natural world but strategies and duties to enhance our biodiversity, allowing it to thrive once again. The Bill mandates biodiversity net gain, a game changer, to ensure that new development truly enhances the environment, allowing our ecological networks to flourish. The Bill looks beyond the UK, with world-leading due diligence measures on our supply chains to tackle illegal deforestation around the planet, saving precious habitats in the Amazon as well as a multitude of other ecosystems.
As COP 26 approaches in less than three weeks, the United Kingdom can prove with tangible action its commitment on the international stage and encourage other countries to match this ambition with similar efforts. I am enormously grateful to my noble friend Lady Bloomfield of Hinton Waldrist, who has supported me both on and, even more so, off the Floor of the House to take through this gigantic Bill. I pay special tribute to the Front Benches and the noble Baronesses, Lady Jones of Whitchurch and Lady Hayman of Ullock, the noble Lord, Lord Khan of Burnley, and the noble Baroness, Lady Parminter, for all their invaluable contributions, which have been detailed and imperative. I extend that thanks to the countless other noble Lords and friends who, from these Benches, have provided ample helpings of constructive support and knowledge. I thank all noble Lords for taking part.
I thank the Lord Speaker and the parliamentary staff for their hard work behind the scenes, and I thank all the environmental stakeholders and committees that have campaigned diligently and effectively on so many of the issues in the Bill. I particularly thank the Bill team at Defra, who have been so extraordinarily patient and helpful throughout.
Across the myriad facets of this landmark Bill, I firmly believe that this legislation is more than just a credible step in the right direction. It is an ambitious answer to the scale of the task before us and provides the apparatus that we know we need if we are to recover nature. I hope it also acts as a rallying cry for others to move along with us.

Lord Berkeley: My Lords, I congratulate everyone who has taken part in this Bill. My own contribution was very small.
I want to ask the Minister why the consent of the Crown and the Prince of Wales is required. The roles and responsibilities are set out very clearly in Clause 147 and Schedule 19, which is pretty long, so what assets are actually involved? The Duchy of Cornwall has been saying for a long time that it is in the private sector. In that respect, there are thousands or maybe millions of other stakeholders who are also in the private sector, so why have the Government not sought the approval or consent of all these other people? What is so special about the Duchy? I look forward to his response.

Lord Goldsmith of Richmond Park: I thank the noble Lord for that question—and for his advance notice of it. That has allowed me to provide an answer, which I probably would not have been able to provide otherwise.
I confirm that the Government have sought and secured the consent of the Queen and the Prince of Wales to a number of measures in the Bill that bind the Crown or apply in respect of Crown land, the Crown Estate or the Duchies of Lancaster or Cornwall. These include—in direct response to his question—provisions to give directions to waste carriers; an expansion of the powers of search and seizure to tackle waste crime; the operation of smoke control areas; changes to abstraction licences; changes to land valuation provisions for the purpose of internal drainage boards; biodiversity net gain, including for infrastructure and in the marine environment; improving the Forestry Act 1967 and provision for an ancient woodland protection standard; and conservation covenants. This is a standard process that the Government undertake for all Bills. Clause 32 of the Bill clarifies that the enforcement jurisdiction for the Office for Environmental Protection extends to all public authorities, including the Crown, and subsection (3) defines the term “public authority”.

Duke of Montrose: I congratulate the Minister on the breadth of this Bill, in spite of many misgivings on the extent of the Henry VIII powers that it contains.
When the House was in Committee on the Bill in June, my noble friend the Minister moved two amendments to Clause 20 to do with the requirement for UK Ministers to adhere to environmental principles. The first of them disapplied a clause of the UK Withdrawal from the European Union (Continuity) (Scotland) Act 2021. In speaking to the amendments, he rounded off his speech by saying that
“this is in keeping with the devolution settlement. We will continue to work with the Scottish Government to ensure that our environmental approaches work together.”—[Official Report, 28/07/21; col. 581.]
This action has provoked a flurry of objection north of the border and an added disagreement on the appropriateness of legislative consent Motions. This House has an important role to play in constitutional matters, and I think the Government should tell us whether discussions were held with the Scottish Government in relation to this action and whether there are any lessons to be learned about working together.

Lord Goldsmith of Richmond Park: I reassure my noble friend that, throughout the passage of the Bill, Ministers and officials from the UK Government have worked very closely with Ministers and officials from the devolved Administrations. We have consistently engaged with the Scottish Government on many of its contents and will continue to do so in future. I hope that answers his question.

Baroness Stowell of Beeston: My Lords, I apologise for intervening on a Bill that I have not been involved in, but my understanding of the procedure at this point is that those who wish to speak will do so and then the Minister will respond at the end, rather than this being a series of questions and answers. I wonder if that might assist the House.

Baroness Jones of Moulsecoomb: My Lords, I agree with the Minister that this Bill, as it stands now, is ambitious. But the Bill we had originally was a terrible Bill and that is why we so heavily amended it—it is quite unusual to amend a Bill to this extent. I hope that the Minister is going to push very hard, with the Treasury and his colleagues in the Commons, to make sure that they take out very few, if any, of our amendments.

Lord Krebs: I thank the Minister and the Defra officials, who have engaged with me and many other noble Lords very constructively during the passage of this Bill through your Lordships’ House.
I echo the point just made by the noble Baroness, Lady Jones of Moulsecoomb: the amendments that have been passed in this House have significantly improved the quality of the Bill. An important point to note is that the amendments had almost universal support from all groups in your Lordships’ House. They were not party-political points; they were points made by those of us who believe passionately in the protection of the environment, now and in the future, to leave a better environment for our children and grandchildren than we have at the moment.
I hope, therefore, as the noble Baroness, Lady Jones, has said, that the Minister will do his very best with his colleagues to ensure that the majority, if not all, of the amendments survive their consideration in the Commons and that we do not have to start the arguments all over again at ping-pong in a couple of weeks’ time.

Baroness McIntosh of Pickering: My Lords, I congratulate my noble friend the Minister on what was, I think, his first Bill in this House, and my noble friend Lady Bloomfield, as well as the Bill team, who went the extra mile. I particularly pay tribute to my noble friend for the amendments that he brought forward, which is always quite an achievement for a Minister in this place.
I would like to press him a little bit further on reaching a balance, particularly in catchment management and the prevention of combined sewer overflow, an issue to which I am sure we will be returning. We have already seen substantial floods in this country and  elsewhere, no doubt due to climate change, and I welcome the provisions of this Bill that will undoubtedly help to reduce that in the future.
I support my noble friend the Duke of Montrose in his comments. I will raise these issues further in the context of the debate on the common frameworks agreement later today.
I want to take the opportunity to congratulate my noble friend the Minister on bringing us to this stage, and to wish the amendments that we have carried a safe passage back to us when the Bill returns to this House from next door.

Lord Marlesford: My Lords, if I may, in view of the fact that my noble friend rightly linked this important Bill with the coming COP 26 conference, I warn Her Majesty’s Government not to be tempted to make announcements of targets to help COP 26 on its way which are unachievable for reasons of politics in a democracy or the realities of economic life.

Lord Cormack: My Lords, very briefly, I endorse what the noble Lord, Lord Krebs, has said. This Bill has not been damaged or impaired during its passage through your Lordships’ House.
I endorse everything that has been said in the way of compliments to my noble friend Lord Goldsmith and what he himself has said about participation across the Floor of the House. This is not in any sense a party-political Bill. It is a Bill that concerns each and every one of us, and our families, for generations to come. Therefore, we do not want to engage in ping-pong.
If my noble friend is to achieve his ambition of getting this on the statute book before Glasgow, which I entirely support, it is important that the House of Commons does not attempt unnecessarily to delete amendments that do not damage but rather enhance the basic principles and objectives of the Bill. It would be a great pity if in a fortnight, on the virtual eve of the conference, we began to indulge in a battle between the two Houses.
This House has an enormous amount—a great wealth—of experience and expertise, and that was perhaps more evident on this Bill than on most others. I know my noble friend the Minister would agree that everybody who spoke did so in a constructive and supportive spirit, so I implore him to use all his powers of persuasion with his ministerial colleagues and others to ensure that the Bill, as it now stands, survives as near intact as possible. Then our Ministers and the president of the conference can go to Glasgow knowing that there is a perhaps unprecedented degree of cross-party support and agreement for a Bill that does indeed, as I said at the beginning, affect us all and our families.

Baroness Parminter: My Lords, it is appropriate that we have the Third Reading today as we see the close of the high-level segment of COP 15 and the publication of the Kunming Declaration, which makes it clear that setting nature
“on a path to recovery is a defining challenge of this decade”.
This House has done its usual proper job of scrutiny of the Bill and has proposed measures to strengthen it that are definitely needed. I thank the ministerial team  and the Minister’s colleagues for accepting some of those amendments, including the legally binding target for species abundance for 2030, and for including major infrastructure projects in the biodiversity net gain regime. Those are welcome measures that the Government have accepted. While we are thanking people, those on these Benches, like others, thank the ministerial Front-Bench team and the Bill team for their unfailing good humour, clear commitment and engagement with us throughout this process.
But, as others have said, many outstanding amendments remain. As we send this Bill down to our colleagues at the other end, be assured that we will work with them and with others around this House, as we have done so constructively through this process, to ensure that it is strengthened, in the way we all know it needs to be, for the future of our country, our people and our environment.

Baroness Jones of Whitchurch: My Lords, I too add my thanks to the Bill team for its patience and courtesy in responding to our concerns and for facilitating so many meetings over the summer. We have all been on a steep learning curve, and it has certainly helped to put us more in tune with the facts behind the thinking on the Bill.
I very much thank the Minister, the noble Lord, Lord Goldsmith, for staying the course. I am sure there were times when he wished to be somewhere else, perhaps even somewhere sunnier. Despite occasionally giving the noble Baroness, Lady Bloomfield, kittens when he went walkabout, he was assiduous in being here, doing the heavy lifting on the Bill and giving us all his attention and his very detailed and thoughtful contributions. On that basis, I thank the Minister for listening, because we received a number of concessions along the way and we are really very appreciative of that.
As other noble Lords have said, of course, we do not think that is quite enough. I hope the Minister recognises that the 15 amendments which we have passed make serious and important improvements to the Bill—and, as the noble Lord, Lord Krebs, and others have said, they have widespread support across the Chamber. I hope this is not the end of the road for the Bill. I hope that the Government have used the recess to reflect on our amendments and will feel able to support their key principles when the Bill goes back to the Commons next week.
We are of course aware that COP 26 is looming but, as we have always said, this is a once-in-a-generation opportunity for us to put the environment on the right course for the future. We still hope that we can reach consensus with the Government to achieve the ambition that I know we all share on this, so that we can reach agreement in the very near future on the final outcome for the Bill.

Lord Goldsmith of Richmond Park: I am grateful for all the remarks by noble Lords and will address them briefly, because we will of course have more opportunities for debate. I thank the noble Baroness, Lady Jones of Moulsecoomb, the noble Lord, Lord Krebs, and indeed the noble Baronesses, Lady Parminter and Lady Jones of Whitchurch, for their polite encouragement  as we come to the final furlong of this huge Bill. I absolutely assure the noble Baroness opposite that I will continue listening and engaging. Like everyone in this House, I am very keen for the Bill to be as strong as it possibly can be.
I sincerely thank many noble Lords for the pressure they have applied and the manner in which they have applied it over the last few weeks because that has led to improvements in the Bill, as a number of noble Lords have commented. It is not my place to discuss or make statements in relation to upcoming debates that we are likely to have. I cannot give my noble friend Lord Cormack a guarantee that we will avoid ping-pong; I encourage everyone to get their best bats, just in case. However, the pressure has been extremely effective and useful. I know that that pressure will continue in the same vein and be equally valuable.
My noble friend Lord Marlesford mentioned unachievable targets. We do not want to impose any unachievable targets. There are some things, no matter how difficult, that simply have to be done; I would say that the 2030 biodiversity target is one of them. There is no possible justification for not making that commitment in law and, although we do not know all the steps we will have to take to achieve it, we know that it will be extraordinarily difficult and that it has to be done. We must find a way but I take his broader point.
Finally, my noble friend Lady McIntosh mentioned storm overflows. This is one of the issues that we will return to in coming weeks but, again, it is a testament to the tireless campaigning of noble Lords, including the noble Duke, the Duke of West—I apologise but I have done it again; it is the noble Duke, the Duke of Wellington—and the pressure that he applied so effectively. As he would acknowledge, we have moved considerably on this issue but there are debates remaining to be had. That is probably enough said for the moment on that.
I hope I have answered the main issues that were raised. I repeat my thanks to noble Lords for their dedication to the Bill. It has been an honour to assist its passage and to serve your Lordships, and I beg to move that the Bill do now pass.
Bill passed and returned to the Commons with amendments.

Social Security (Up-rating of Benefits) Bill
 - Second Reading

Baroness Stedman-Scott: Moved by Baroness Stedman-Scott
That the Bill be now read a second time.

Baroness Stedman-Scott: My Lords, each year the Secretary of State is required by the Social Security Administration Act 1992 to undertake a review of social security and state pension rates to consider whether benefits have kept pace with inflation or, in some cases, the increase in earnings. This review is due to begin shortly, and the Secretary of State will report to Parliament in November.
The Bill before us suspends for one year the requirement to undertake a review of trends in earnings and to increase certain rates in line with those trends. This is because the effects of the Covid-19 pandemic have caused distortions in the labour market, which have been reflected over two years in highly atypical trends in earnings growth. Last year, they slumped by 1%; this year, we expect them to increase by over 8%.
The Bill therefore replaces the link with earnings, for one year only, with a requirement to increase these rates at least in line with the increase in prices, or by 2.5%, whichever is higher. The relevant rates are: the basic state pension; the full rate of the new state pension; the standard minimum guarantee in pension credit; and survivors’ benefits in industrial death benefit. Normally, the Secretary of State considers a specific reference period to measure earnings growth as part of her review. That same earnings reference period has been used for the past decade.
In preparing for the review last year, we saw an unprecedented fall in average earnings as a result of the Covid-19 restrictions we introduced to protect lives and the NHS. That is why we changed the law for one year to set aside the earnings link; otherwise, these state pensions would have remained frozen. The Secretary of State then decided to increase most of the relevant rates by 2.5%, once she had completed her assessment of the increase in prices, which was 0.5%, as measured by the consumer prices index.
As we prepare for this year’s review, the economic context is very different now that our economy and businesses have reopened. Figures published by the Office for National Statistics yesterday confirm an increase in earnings of 8.3%, which is over two percentage points higher than at any time over the last two decades. These growth figures have been distorted due to the slump in wages at the start of the Covid-19 pandemic, along with millions of people having moved off furlough and back into work. The Government do not believe that it would be fair to younger taxpayers to increase these rates by such a high percentage, on top of the 2.5% increase last year, when earnings slumped by 1% and inflation stood at 0.5%.
Therefore, I am seeking the agreement of noble Lords to set aside the earnings link once more in 2022-23. I stress that this is for 2022-23 only; after that, the link with earnings growth will be restored. As I mentioned earlier, in place of the earnings link, the Bill requires the Secretary of State to increase the relevant rates at least in line with inflation, or by 2.5%, whichever is higher. We will know what the relevant CPI figure is on 20 October, prior to Committee.
While we await the actual figure, I can give noble Lords an indication of the increases that will apply to these rates if inflation in the year to September 2021 were 3.3%. This is in the range expected by internal analysis. The full rate of the new state pension would increase by around £309 a year, or around £5.95 a week. The basic state pension and the higher rate of the industrial death benefit would increase by around £237 a year, or around £4.55 a week. The single rate of the standard minimum guarantee in pension credit would increase by around £304 a year, or around  £5.85 a week, and the couple rate would increase by around £463 a year, or around £8.90 a week. The additional state pension is not included in the Bill, since the Social Security Administration Act 1992 already provides that it must be increased annually in payment, at least in line with the increases in prices.
I was pleased to meet several of your Lordships between First and Second Readings to discuss the Bill. We covered a number of important matters, including the future of the triple lock, different ways of measuring earnings growth in the economy, the take-up of pension credit, progress on reducing pensioner poverty, and the effects of state pension uprating on the National Insurance Fund. I am sure that these issues will arise in our discussions today, and I look forward to addressing them in more detail in my closing remarks. It is my sincere hope that we can continue to engage in this way as the Bill progresses through the House. Should any noble Lord wish to discuss any part of the Bill between its stages, my door is always open. I propose to hold a further all-Peers briefing in between Second Reading and Committee—details of this will be forthcoming.
In conclusion, the Government believe that it was right to legislate to protect the value of the state pension in 2021-22, despite the decline in earnings by younger taxpayers, who met the cost of doing so. The Government believe that it is right to protect the value of the state pension again in 2022-23, while also protecting the interests of younger taxpayers by suspending, for one year, the link with earnings growth in the unprecedented circumstances brought about by the Covid-19 pandemic. I beg to move.

Baroness Drake: My Lords, I recognise that while the 8.3% increase in earnings figure will reflect the exceptional pandemic impact on labour markets, it will not account for all of that increase. I have two real concerns flowing from this Bill and the public debate surrounding it: first, the growing assertion that pensioners have been excessively benefiting over recent years; and, secondly, that the removal of the earnings uplift for this year may be a Trojan horse for removing earnings on a permanent basis.
The state pension provides both an income for existing pensioners and a firm foundation on which workers can save and build for their income in retirement. Providing such a foundation was an integral part of pension policy reforms, which included increasing savings through auto-enrolment and raising the state pension age. It was the stated premise for the new state pension introduced in 2016. The Government presented it to Parliament as supporting pension savings so that current generations of workers had a decent foundation on which to build for retirement.
A fall in the value of the state pension against average incomes impacts existing pensioners but makes future pensioners poorer as their private pension savings would go to replacing the fall in the state pension, rather than improving their overall retirement income. Earnings are an essential part of the uprating formula to avoid future generations becoming poorer relative to average or median incomes and because of the spread of means testing.
Figures published by the DWP and the ONS reveal that in 2020 benefit income, including state pension, was the largest component of total gross income for both pensioner couples and single pensioners. It was 57% for single pensioners, and nearly two-thirds of the total income for single female pensioners was benefit income.
Pensioner poverty, when measured against median disposable income, has risen from 13% to 18%. That dominance of the role of state pension income will persist long into the future and may well increase. Although income from occupational pensions was 32% of total gross income for pensioner couples and 27% for single pensioners, those figures are likely to fall as future generations have declining access to more generous occupational pensions.
Looked at from a regional perspective, in the majority of regions in England, pensioner couples have average weekly incomes below the UK pensioner couple average. This includes the north-east, the north-west, the east Midlands, the West Midlands, Yorkshire and Humber, and London.
Pensioner incomes have been stable for 10 years. In 2020
“pensioners had similar average incomes after housing costs … to … 2010”—
a statement I lifted from the DWP’s own figures and statements. Pensioner average income did increase significantly between 1995 and 2010, which also saw the introduction of the pension credit minimum income guarantee for the most impoverished pensioners.
Although it is clearly beneficial, we should be measured about the extent of the impact of the triple lock, particularly given that most current pensioners reached state pension age before the new state pension was introduced in 2016. For them, the triple lock does not apply to all of their state pension. It does not apply to the state second pension element and yet this accounts for 20% of state expenditure.
The triple lock has also operated at a time of significant cuts to health and social care spending, on which older people are so very dependent. These cuts will have contributed to the slowing down of improvements in life expectancy. We have yet to see how the NHS backlog aggravates that trend. A just-published Imperial College report now reveals falling life expectancy in urban areas such as Leeds, Newcastle, Manchester, Liverpool and others.
Pension credit, the means-tested, minimum income guarantee for the poorest pensioners—for which nearly 2.5 million are eligible but only 1.5 million claim—is not covered by the triple lock. The Government mitigated that omission by an underpin of a cash increase, but not by extending the triple lock. Pension credit is also a passport to other benefits such as reduced council tax and a free TV licence, which some 1 million of the poorest pensioners are missing out on. In the other place, the Minister advised that the department was engaged in a publicity campaign to raise awareness, but there are no figures available on any increase in pension credit claims occurring as a result. That underclaiming will be contributing to the rise in pensioner poverty.
Of course, the state pension has to be sustainable, and there are two key levers for controlling expenditure. One is making the state pension less generous over time, the other is increasing the state pension age. We risk losing sight of the significant accelerated rises in the state pension age already introduced, with more to follow. The number of pensioners has seen a fall. The full basic state pension is 10.3% higher than if it had been earnings-linked since 2011, but some of that gain will be clawed back through benefits and not applying an earnings uplift for this year.
We need to see this in total. Successive Governments allowed the value of the basis state pension to decline relative to earnings, from 26% in 1979 to around 16% by 2008. The Labour Government agreed to restore the earnings link, and the triple lock has resulted in the basic state pension rising from 17% of average earnings in 2011 to 19% in 2020. However, the new state pension has now replaced the basic state pension and the second state pension, and it applies to those reaching state pension age from 2016. It was set, as reported by the Government and the DWP, at a value just above the pension credit guaranteed income for the poorest pensioners, indexed by earnings, which the Government stated was sustainable and reduced pensioner benefit expenditure over the long term as a percentage of GDP, even taking into account the triple lock.
There is a cohort of retired people who are clearly better off, with access to generous occupational pensions, but that should not affect the perceptions of the financial position of pensioners as a whole. For the top fifth of pensioners, the largest source of income was their occupational pension, and they received a larger percentage of their income from earnings. Legitimate intergenerational fairness concerns, when looking at the most well-off pensioners, may be better addressed through the tax regime and national insurance rules for those working over the state pension age. Indeed, the Government have taken such a step in applying the 1.25% national insurance levy to the earnings of those over the state pension age. Weakening the state pension would be regressive, hurting those pensioners who most depend on it, and having the least impact on those who have a larger alternative source of income.
Turning to my second concern: the removal of the earnings uplift provision, even for a year, may be a Trojan horse for its permanent removal. When at the meeting that the Minister referred to, I asked whether there was a guarantee that it would be restored. I had the rather ambiguous answer that that will have to be argued next year.
The OECD figures reveal that in the UK, the average earner receives a replacement rate of income of 28.4% at retirement from the state pension, well below the OECD average of 58.6% and the EU average of 63.5%. However, in the UK, when workplace pensions are included, the net replacement rises to 61% compared to OECD and EU averages of 65.4% and 67% respectively. That tells us that the UK pension system relies heavily on private pension saving to fill the gap. Auto-enrolment is intended to maintain such a reliance, but it can do so only if the state pension is maintained as a firm foundation for those savings, at least holding its value over the long term against earnings. Otherwise, the savings of younger  workers will be covering the fall in their state pension rather than improving their retirement income, and they cannot fill that gap.
Private pension contributions above the statutory minimum will be impacted by the rise in national insurance contributions. There will be a substitution effect, particularly in the private sector where, prior to the pandemic, some 60% or more of workers were in SMEs and a very significant proportion of them in small and micros. Therefore, it is very important that this combination of the firm foundation and private savings is protected.
Can the Minister tell us—for the record and on the record, unequivocally—whether the Government are committed to maintaining the state pension as a firm foundation, holding its value against average earnings over the long term as a minimum upon which future workers, including young workers, can build for their retirement? Can the Minister also confirm that this Government will not reduce the value of the basic state pension relative to average earnings?

Baroness Stowell of Beeston: My Lords, it is a great privilege to follow the noble Baroness, Lady Drake, a renowned expert in this field, as indeed are many other noble Lords participating in today’s debate, unlike myself. Some of her points were very interesting. Clearly, she approached this argument from a position of expertise based on wide financial and economic knowledge. My contribution will be very much principle-based, but from listening to her, there is some common ground between us, although what I have to say is rather different.
My noble friend the Minister made a strong case for suspending the pension triple lock for one year only. The key argument for me is one of fairness, something which pensioners will recognise too if they look at this from the perspective of their own experience. However, I share with the noble Baroness, Lady Drake, the view that this should be a suspension for one year only, and I would certainly seek my noble friend’s confirmation that this is not a step towards permanently breaking the triple lock.
I make this point particularly on behalf of the over-75s—the silent generation, as they are described by researchers—and on behalf of older baby-boomers. When people comment on this who are not necessarily as informed and expert as the noble Baroness and many others here today, reference is made to what is seen as recent generosity to pensioners by way of pension payments. What gets overlooked is that older pensioners contributed a lot throughout their working lives.
These pensioners faced and overcame many challenges. I am talking not about the war but about growing up in an era when being poor meant that you went without or, maybe later, having to bring up a family on a three-day week. I am talking about the kind of people who did not enjoy free university education either. Although they may have bought their homes, which have gone up in value during the past few decades, before the 1980s getting a mortgage was probably harder than it is today. My point is that they got through all  that without the advantage of the kind of benefits which are available today or were put in place after 1997 and caused among a lot of people a real sense of unfairness.
I agree with others that we need to make sure that our pensions and benefits system keeps pace with the changing world, which should include reviewing pensions policy as today’s younger boomers get older—but on that I would defer very much to the experts who will contribute to today’s debate. However, if we work on the general principle of fairness and that contribution is important to the legitimacy of the welfare system and to people’s willingness to keep paying in even at times in their life when they are not in receipt of benefits, we should also recognise the experience of today’s older pensioners.
As I have said, I am sure that many noble Lords can and will make a better economic case than me to justify the point that I am making, and some noble Lords may want to have an economic argument to claim that I am wrong, but I think that older pensioners, especially at a time when we are suspending the triple lock, need to hear us recognised not just what they have contributed in financial terms but that they have coped in situations without the kind of support that families and younger people receive now. Just to be clear, I am not arguing for a return to the past nor am I calling for us all to get nostalgic; the world is a very different place now and today’s challenges are different. However, it might give older pensioners some confidence in the future that they are not going to see and yet hope for their children and grandchildren if we parliamentarians argue that there are lessons about financial management, getting our priorities right and making choices which they taught us and we must not forget. Indeed, they need and want us to promote those lessons as principles which remain as valid today as they have always been. I say all this because I think these are things which we know and sometimes take for granted, but that does not mean that they are not points that are worth restating and which people need to hear us say.
To pursue the principle of fairness, I want to ask my noble friend the Minister a question about working-age people. I know that she, like me, believes that it must always pay people to get work: work must always pay and it must always be the best option. As we come out of a phase where people have got used to support such as furlough, when people may need to take on extra hours because of the end of the temporary uplift in universal credit and when we face rising energy costs and other cost of living increases, what is the Government’s position on reviewing and changing the universal credit taper rate so that people can enjoy greater returns for more hours at work?

Baroness Smith of Newnham: My Lords, the noble Baroness, Lady Drake, talked about a Trojan horse. With the Trojan horse bearing the Greeks, at least those in Troy thought they were getting something that was beneficial. With this Bill, I am wondering what the benefit could possibly be to anybody.
The Minister and the noble Baroness, Lady Stowell, suggested that the Bill is about fairness, but I suggest that there is something rather more insidious here.  The Bill is allegedly to make a change for a year. The same has been said about overseas aid. The same person, perhaps, has been drafting memos to Ministers saying that this is all because of Covid and is for just one year. However, for those people who will lose the uplift for this one year, just like for those people overseas who will lose the benefits of overseas aid “for just this one year”, this does not feel fair. It feels incredibly painful.
My real concern is this: how can anybody be sure that this so-called one-off proposal is one-off? As the Minister has already told the House, it is not exactly a one-off because the Government had a one-off change last year, when they said that they wanted to change in order to be more generous. I am not quite sure in what way they were being generous last year. As I understand it, the triple lock has three elements. The earnings component was negative last year and inflation was at 0.5%, but the 2.5% uplift would have been in place anyway, so I am not sure why any change was required. Perhaps the proposals for 2022-23 are indeed a one-off.
All the reasons that the Secretary of State has given for the proposals relate to Covid. They all seem to suggest that the potential rise in wages or earnings of around 8% is because of the return to work from furlough and the end of the Covid arrangements. In that sense, the Secretary of State might be right. She said that the rate of increase in earnings is “unprecedented” and a
“distorted reflection of earnings growth.”—[Official Report, Commons, 7/9/21; col. 185.]
How has she come up with this assertion? Is she sure of it? Can the Minister explain to the House whether the Secretary of State has done this analysis herself or engaged somebody else to analyse how far the increase in earnings in 2021 is associated with Covid? Could it not be that some of the rise in earnings is because of Brexit? After all, many of the EU nationals working in the United Kingdom before Covid, which just about coincided with Brexit and began just before the end of the transition period, have not come back to work here, and employers are now being urged to increase wages, particularly for those who drive heavy goods vehicles, for example. That is not about Covid. It is about the long-term consequences of Brexit. Nobody can claim that that is the impact of a year.
If those consequences are indeed for the medium to long term, can the Minister explain to the House what preparations the Government are making for the scenario in which earnings continue to rise in what the Secretary of State might think of as “unprecedented” or “distorted” ways? What safety and security can she give to pensioners who thought they were supported by the triple lock that they will not be told next year, yet again, “This is another anomaly and we just have to make a change for just another year”? Once a precedent has been set, the danger is that it becomes a tradition and never changes.
Of course, that does not happen the other way round. On the temporary uplift in universal credit, the Government said, “Oh, we’ve got to take that away because it was only temporary”. I believe that the noble Baroness, Lady Stroud, will talk about this in more detail later in the debate, but I add my support to  anybody in your Lordships’ House and elsewhere who will make a case for keeping the £20 uplift because taking money away from people—particularly the most vulnerable in society—is far more difficult than if you never gave them that £20 in the first place.
Many of the people who have benefited from the £20 uplift were not on universal credit before the start of the current crisis. They have had to go and seek universal credit only since the start of the pandemic. It is very easy for the Secretary of State to say, “They can work a little bit longer; they can do more hours.” But they might already be working as many hours as are legally possible. They need the support, and we should think about being generous.
I have a few questions for the Minister. There is not an impact assessment on these proposals, because we are told it is just for one year, so an impact assessment is not required. It may not be required, but it would be good practice, and it would help many of us making these decisions to understand what the impact is going to be. Perhaps the impact will not be as great as some of us fear. If pensioners who are concerned about the loss of the triple lock could be reassured, surely that would be in even the Government’s interest. So, could the Minister explain why there is not going to be an impact assessment and whether it would not be a good idea to have one?
The triple lock, a very good policy brought in by the coalition—originally a Liberal Democrat proposal—was so good that the Conservatives put it in their manifesto for 2019. So it is a government pledge. Members of your Lordships’ House, if asked to support the triple lock, would presumably feel honour bound under the Salisbury/Addison convention to support it. How can we then be asked to turn away from it? Why should we? As a Member of the Opposition Benches, I could think it is great that a Government are not delivering on their manifesto pledges; as a Liberal Democrat, I know all too well the difficulties that can face a political party that turns away from its manifesto pledges. But as a Member of your Lordships’ House—somebody who is tasked with legislating on behalf of the most vulnerable—surely it is incumbent on me, and every Member of your Lordships’ House, not to play politics but to think about the implications of turning our back on this pledge.
I understand that 8% might be too much to increase pensions by this year, but perhaps a middle way could be found. Could the Minister please think about that, take it back to her department, talk to the Secretary of State and consider whether a slightly better proposal could be brought back and whether amendments could be brought forward in Committee? If the Government do not bring amendments, the Opposition Benches will and perhaps some Members of her own Benches will as well.

Baroness Greengross: My Lords, I agree with the Government that the state pension triple lock needs reforming—but not, I am afraid, with these proposals. As many Members will know, I have spent much time recently with colleagues in the Intergenerational Fairness Forum, which I am privileged to chair, considering a  new system for funding social care, with the aim of fostering intergenerational cohesion and mutual support across the generations—something I think we all agree would be extremely positive. One of the forum’s recommendations was that the pensions triple lock be replaced permanently by a double lock, whereby it rises in line with average earnings or with inflation, whichever is the highest. We propose that any revenue saved by this measure should be ring-fenced and redeployed to fund social care.
We believe that our proposed double lock is justified because since 2010 the brunt of social security and tax credit changes has been borne by people of working age. We also agree with the House of Commons Work and Pensions Select Committee that, provided the state pension is maintained at the current proportion of average earnings, the aim of the Government to ensure a decent minimum income for people in retirement to underpin private savings will have been achieved. A double lock would also continue to protect people depending on the state pension against any periods of high inflation—a risk that, as we know, we may once again be facing.
We have strongly recommended that, alongside the state pension double lock, the Government should undertake a major social marketing campaign to encourage greater take-up of pension credit by those who are entitled to have it. It is dreadful that the estimated rate of pension credit take-up is just 60% and I hope the Minister will be able to give me an assurance that the Government have concrete plans to improve take-up of this vital benefit.
If these two measures were combined, pensioners living in poverty would be better supported, as they are entitled to be under the pension credit rules, while other pensioners would make a fairer contribution to the burden borne by wider society at a time when public expenditure is constrained. They would also share the benefits of economic growth, when it occurs, by retaining the historical link between pensions and average earnings. This combination of measures supports intergenerational fairness and social cohesion.

Bishop of Durham: My Lords, when I read the title of the Bill I thought, “Good: we will have before us a measure that covers the wide issues of the uprating of the wide range of social security benefits we have, most notably pensions, universal credit and perhaps the question of legacy benefits.” So I was very disappointed to discover that, actually, the scope of the content was purely to do with pensions.
In relation to pensions, I have sympathy with the proposals tackling a specific issue that appears to have emerged as something of an anomaly, given our recent experience of the pandemic. I think the triple lock was probably the right move when it was introduced and it has served pensioners well. However, I now have questions as to whether having such a lock in one part of the social security system actually prevents both the Treasury and the Department for Work and Pensions from truly looking at the system and its funding as a rounded whole—although I note with care the comprehensive and careful input of the noble Baroness, Lady Drake,  and that of the noble Baroness, Lady Greengross, just now on the double lock. But this is an uprating Bill for the system, it is not about changing the system, so with some reluctance I accept the proposals in the Bill.
However, I now turn to my deep disappointment with the Bill. I join many noble Lords in raising a concern that the Bill does not address the universal credit uplift cut. I recall the debate in this Chamber back in February, in which many Peers expressed their concern that a Bill would not address what is historically one of the most significant cuts to social security benefits. The letter sent by the Minister outlining the content of this Bill began by stating:
“Every year, the Secretary of State for Work and Pensions is required to undertake a review of social security rates to consider whether benefits have kept pace with inflation or earnings increases.”
When we are considering a Bill that is so conscious of inflation and the broad economic environment, my question to the Minister is: why is this argument not being applied across the board? Why, since the Government are so consciously accounting for the economic environment for pensioners, are they not doing the same for benefit claimants, which they have stated in their letter they are obliged to do? The removal of the £20 uplift in universal credit and the quiet 0.5% increase in universal credit are tiptoeing around a serious issue affecting hundreds of thousands of lives and pushing many—including an estimated 290,000 children—back into poverty.
I have to say to the Minister that I have lost count of how many people have thanked me for speaking out on the universal credit cut. I was not going to speak in this debate; it was that public pressure that made me do so. Hence, if this House can legitimately find a way of ensuring that, through this Bill, the other place is given the opportunity to properly debate the £20 cut, I would support that. If there is no such mechanism, we might have highlighted a deficit in our polity. I also support the question asked by the noble Baroness, Lady Stowell, on the earnings taper in universal credit.
I support what is in the Bill—slightly reluctantly, as I have said—but I am deeply concerned at its massive omissions. These mean that hundreds and thousands will not be adequately supported through our social security system this winter and into the year ahead.

Baroness Altmann: My Lords, I declare my interests as in the register. I would also like to put on record my thanks to my noble friend the Minister and her officials for the very helpful and thoughtful engagement that she has had on this topic with interested Peers.
This is the fourth time since 2014 that legislation for uprating of pensions is being changed, yet this time there is no impact assessment or explanation of the impact on pensioner poverty. We are being asked to approve this—the House of Commons already has—before knowing what the CPI figure that may well be used instead of the 2.5% figure will be. I echo concerns about this setting a dangerous precedent.
However, I would like to help my noble friend, her department and all in your Lordships’ House, including the right reverend Prelate the Bishop of Durham, to  see that this legislation is based on a false premise and is unnecessary. It is simply not the case that this Bill is needed to avoid an 8%-plus increase in the state pension or the pension credit. Section 150A of the Social Security Administration Act 1992 requires the Secretary of State to consider “earnings”, but the law does not define this term.
The ONS has already very helpfully produced an adjusted figure to take account of the base effects from last year and the exceptional impact of the pandemic on average weekly earnings, which is the traditional measure that has been used for uprating. It has also estimated the composition effect. It has come up with an adjusted earnings figure in the range of 3.2% to 4.4%. My noble friend from the Front Bench has already suggested that the CPI figure that will be released next week could be around 3.3%.
Using the adjusted earnings figure could avoid this—draconian, in my view—legislation, which tears up years of protection for pensioners and breaks a manifesto commitment. I am sure that those of us on these Benches are particularly concerned about that. Using the adjusted earnings figure would still potentially allow significant cost savings of £3 billion or more relative to using the unadjusted earnings figure, which, as I have tried to explain, is not necessary.
We hear that this is for only one year and that there may well be a restoration of the earnings link. However, the triple lock—I agree with noble Lords who have already mentioned this—is not an ideal uprating mechanism in any case, especially since the new state pension. It is the 2.5% figure that is the anomaly; it has no social or economic justification. Yet we are being asked to remove the earnings link, which I am convinced from many years of working on pensions policy is the most important part of pension uprating, because the 2.5% figure was used last year.
The UK state pension is hardly a king’s ransom. It is the lowest in the OECD, as the noble Baroness, Lady Drake, explained, and still below the 1979 levels, relative to average earnings. Millions of pensioners have no or very little income other than the state pension. Indeed, the pension credit designed for the poorest pensioners has always been uprated only by average earnings; it has never been triple-locked. The triple lock was a political construct that did not properly protect the poorest pensioners, yet here we are being asked to remove the earnings protection from the pension credit.
We have been down this road before. In 1979 Mrs Thatcher removed the earnings link from the basic state pension. As others have said, at that time it was worth 26% or so of average earnings. Subsequent to that, in 2010 it was worth 16% of average earnings. At the time there was some justification for removing the earnings link because we introduced a very generous state earnings-related pension, so that could carry the earnings uprating for pensioners.
The state earnings-related pension scheme, subsequently replaced by the state second pension, did provide earnings protection for many pensioners. However, millions—particularly the poorest pensioners, the lowest  earners and mostly women—do not have the earnings-related bit of the state pension because they were not credited into it, they were not in the labour force long enough, they were caring for others, and so on.
We are therefore left looking at the basic state pension, the pension credit and the new state pension in this Bill because the additional parts are uprated only by prices, which is appropriate as they are mostly earnings-linked anyway. I argue that we are setting a very dangerous precedent if we fail to recognise the importance of protecting the poorest pensioners against falling behind the rest of society in earnings.
Let me give some figures. Average earnings are £540 per week. The basic state pension, after the triple-lock increases since the 2011 changes, which I supported at the time, is now £137.60 per week. The new state pension, which was brought in to encompass and incorporate the earnings-related bit of the state pension and the basic state pension for future pensioners, is now £179.60 per week. The pension credit, which the poorest and usually oldest pensioners rely on, is £177.10. We are not talking about well-off pensioners here.
We are now debating not increasing the state pension, their pension or the pension credit in line with average earnings, as adjusted by the ONS. This breaks a triple promise to pensioners. Breaking the triple lock, as proposed in the Bill, breaks only one of those promises. From the triple lock it retains the prices commitment and the 2.5% commitment—although I find that figure difficult to justify—but it breaks three promises: first, the triple-lock manifesto commitment, a political promise; secondly, the legal commitment to increase pensions at least in line with earnings; and thirdly, the legal commitment to increase pension credit at least in line with earnings.
We could still honour all these promises without the risks that this legislation entails if we used the adjusted figure. I urge my noble friend on the Front Bench, her department and noble Lords in this House to see what the CPI figure is when it is released next week. If, as expected, it is around the 3.3% level, I urge them to bear it in mind and to recognise that using the adjusted earnings figure would be a better way to amend legislation. It could, perhaps, be explicitly stated in primary legislation that the earnings index used should be at the discretion of the Secretary of State and could be adjusted in exceptional circumstances. I also urge my noble friend to consider the dangers of taking this protection away from pension credit.
Finally, I echo the call for a formal, comprehensive review of pensioner benefits and uprating to assess the triple lock, including the retention of the minimum 2.5%, and for rolling tax-free benefits such as winter fuel payments into a higher state pension which would then be taxable. This would allow us to avoid this constant round of having to amend legislation because previous commitments to uprating had caused problems.
I hope that we will be able to improve this Bill. I am very much looking forward to hearing the words of my noble friends Lady Stroud and Lord Freud on the issue of the uprating to universal credit.

Lord Davies of Brixton: My Lords, I echo the thanks offered to the Minister for the open way in which she has presented these proposals and for the extent to which she has been prepared to talk to us about them. It gives me great pleasure to follow the noble Baroness, Lady Altmann. She made a compelling case; not quite compelling enough for me to agree with it but, for the life of me, I do not understand why the Government do not agree with it. It seems a straightforward way for them to proceed. I hope that there will be further debate on this in Committee.
Other speakers have and will draw attention to the Government’s shameful decision to break their election manifesto promise to retain the triple lock, as my noble friend Lady Drake has made clear. I want to talk about what the triple lock is for, why we have it, why it is important and why it should apply to the increase to the state pension in 2022.
The triple lock was introduced by George Osborne in his Budget speech, following the formation of the coalition Government in 2010. He promised that, from 2011, the basic state pension would be linked to earnings. He went on to say that pensioners would
“be protected by our new triple lock, which will guarantee each and every year a rise in the basic state pension in line with earning or prices or a 2.5% increase, whichever is the greater.”—[Official Report, Commons, 22/6/10; col.180.]
This was the first time the phrase was used in Parliament.
This was not the Chancellor’s idea, as the noble Baroness, Lady Smith of Newnham, pointed out. We have to acknowledge that the structure of the triple lock was included in the coalition’s programme for government as an almost word-for-word lift from the Liberal Democrats’ 2010 manifesto. The link to earnings was in the Tory manifesto but the triple lock was not. Credit where credit is due to the Liberal Democrats, although I think it was probably as much of a surprise to them as it was to the rest of us that they turned out to have the opportunity to make good on their commitment. What is not clear from the manifesto, the coalition Government agreement or the Budget speech is what the triple lock was for, apart from general comments about fairness to pensioners or that pensioners deserved dignity and respect in old age.
The implication is clear: many thought of it in pragmatic terms of keeping pensioners’ income in line with those who are in work, while avoiding the embarrassment of an under-inflation increase or one of 75p. But any triple lock based on the highest of three separate figures is bound to result in what is described as the ratchet effect; in other words, over time, the pension covered by the triple lock is bound to increase by more than the increases determined by each of the individual elements, including earnings. In other words, the job of the triple lock is not just to protect pensioners in terms of earnings or prices: it is, over time, to achieve real increases in their incomes when measured against either of these indices. I argue that this ratchet effect is an inherent part of the triple lock which is enshrined in legislation. It is not an anomaly, a statistical quirk or something to be discarded when it is no longer convenient. It is an inherent feature of the triple lock—a feature, not a bug.
Whether you agree or not depends on whether you think that the state basic pension or the new state pension are currently high enough. If you think that they are, you do not need the triple lock, but if you want to see them increased, as I do, then the triple lock has a proven track record of gaining ground on that objective. It is not pretty but it appeared to work.
Again, some credit has to be given to Governments over the last 11 years, during which, because of the ratchet effect rather than any explicit policy decisions, there has been an increase in the state basic pension from 17% of average full-time earnings to 19% in 2020. That is too little and too slow, but it is real, nevertheless. Perhaps we could have a debate about what level of flat-rate state pension we need and what should be the target when we have a ratchet effect, but it is clear that 19% is not enough; it is well short of the 26% that was reached back in 1979. These benefits are not just inadequate; there is a long way to go before they become adequate. We definitely still need the triple lock. I am prepared to take something better and faster to replace it, but it is what we have got.
It is important to emphasise that the key advantage of the ratchet—of moving towards an adequate level of the flat-rate state pension—is that it is automatic. Until now at least, it has not been affected by short-term political considerations. I am afraid that the record of all Governments between 1979 and 2010 demonstrates that we cannot rely on ad hoc decisions to achieve increases in state flat-rate pensions. We need a mechanism that, like the triple lock, builds in a presumption that, over time, there will be increases in real terms.
This brings us to the increases due in 2022, as determined by this Bill. I believe that we can and should stick to the triple lock, as provided in legislation. Taking the increases to be made in 2021, 2022 and 2023 provides an ideal opportunity to achieve a significant increase in flat-rate pensions towards a more adequate level. This can be only a good thing. No doubt, it will be pointed out that this has to be paid for, but for today’s debate I will dodge that issue, although I understand that my noble friend Lord Sikka will touch on it. I would like to make clear, however, that I support increases in taxation for those with the broadest shoulders to meet clear social need and, in particular, the restoration of the Treasury supplement to the national insurance fund.
I want to direct a few remarks to another feature of the triple lock. Too often in these discussions there is the implication that it applies to the totality of state pensions—people have repeatedly said today that the triple lock applies to state pensions. That is not correct: it applies only to the flat-rate elements. The rest of each individual state pension—whether the additional pension, increases for deferment or the graduated pension—is increased only in line with CPI. In practice, this means that those pensioners with smaller state pensions, for whom the flat-rate pension is a larger proportion of income, get a higher percentage increase. Equally, those with higher state pensions get a smaller percentage increase. This effect is magnified when you take pensioners’ other incomes into account, where the increases that they receive tend to be in line with prices or less.
I have done some calculations of the impact on pensioners’ incomes if we stick with the existing triple lock. Using data on pensioners’ incomes and looking at single pensioners, I estimate that a pensioner at the lower end of the income scale—most of whom, of course, are women—on the first decile of income distribution will see an increase of about 7.5% if we stick with the triple lock. If we net off the expected increase in CPI of around 3.5%, the poorest pensioners get a 4% increase in price terms and less in earnings. Even after that increase, they will still be on only £170 a week total income.
A pensioner at the higher end of the income scale, on the ninth decile, will see an increase of about 4.5% in their overall pension. If we net off the expected increase in CPI of about 3.5%, the poorest pensioners will get a 1% increase in price terms—in earnings terms it probably means a standstill—but the better-off pensioners are, if anything, still falling behind. So the triple lock gives the greatest proportionate help to the poorest pensioners.
I want to draw the attention of the House to a serious defect in the triple lock that needs to be addressed. There is not enough time today to go into the details, but it needs to be understood that the triple lock discriminates between pensioners like myself, who receive the basic state pension, and those who reached their state pension age on or after 6 April 2016 and are entitled to the new state pension. As the rule stands, we older pensioners will receive smaller increases than those who retired more recently, even where our rights are identical. It looks likely in the coming year that this will not be a problem, but in the longer term it is a real issue, and it will not go away.

Lord Freud: My Lords, this Bill is designed to control pension spending and I am broadly in agreement with its direction. However, as the right reverend Prelate the Bishop of Durham has just pointed out, there is another pressing issue in social security: the removal of the £20 a week from universal credit at a time when pricing pressures on the poorest are intensifying.
There is a backstory here. Between 2010 and 2016, the Government were running two parallel welfare strategies. The first was from within DWP. The aim of the team was to transform the legacy systems that by then were falling apart, and the centrepiece of the reform was universal credit. The second policy emanated from the Chancellor, who was determined to cut the levels of benefit. With the Treasury acting as his enforcer, he aimed to take out £30 billion of welfare payments each year as part of an austerity strategy. That austerity was selectively targeted, with welfare recipients bearing a disproportionate burden. To summarise, our strategy in the DWP was to streamline and simplify while the Chancellor’s approach was to cut and complicate. So the £20-a-week uplift last year was not simply a response to Covid-19 but a way of dealing with the general erosion of the levels of benefit.
If we take away the Chancellor’s complexities, universal credit is one of the most important reforms, if not the most important, of the coalition Government. In its essence, it gets rid of all the separate benefits that had been trapping people in particular silos. It allows people the flexibility of life in the real world. Talk to any  front-line DWP staff and they say the same thing: “At last, a system that works with the grain, not one that we have to struggle around.” That is why I think it is essential to keep it on a proper footing with an adequate basic payment; I say “adequate” because an additional £20 a week is hardly generous. In that regard, I have a single question to ask my noble friend the Minister: could she tell us the department’s central estimate, given the taper and the projections for employment, of how much the £20 uplift would cost to maintain in the next financial year?
I know this House believes in universal credit. It made herculean efforts during the passage of the original Bill and many of its best proposals were incorporated in the ensuing 2012 Act; I know that, because I made sure they were. However, speaking now to my colleagues on these Benches, I say this: universal credit is a major reform that is to the credit of the Conservative Party, and it is the height of foolishness to destroy that legacy in the name of a false austerity from a decade ago inherited by the current Chancellor. Many Conservative MPs feel exactly the same way, and, alongside my noble friend Lady Stroud, I will be endeavouring to ensure during the passage of this social security Bill that those MPs have a chance to vote their support for an adequate provision of universal credit.

Baroness Lister of Burtersett: My Lords, it is a genuine pleasure to follow the noble Lord, Lord Freud, which is not something I thought I would be saying. Although the Bill is about the triple lock, it would not be right in the present circumstances to ignore the wider questions about the uprating of social security benefits that he mentioned, as did the right reverend Prelate.
First, however, I am on record as calling for a public debate about the triple lock’s future, not least because the risk of poverty is now higher among children than among pensioners. That said, the rise in recent years in relative pensioner poverty, mentioned by my noble friend Lady Drake, reinforces the case made by a number of bodies and noble Lords, including today, for a proper strategy to improve the take-up of pension credit, which research by colleagues at Loughborough University indicates could reduce pensioner poverty significantly. Ministers have responded with a number of welcome measures, but they fall short of the kind of strategy called for. What progress has been made in improving take-up?
Despite the rise in pensioner poverty, I accept that it would be difficult to justify an 8% or so pensions increase, given the artificial nature of that figure. Speaking personally—I stress that this is a personal view—it is time for a review of the triple lock. The triple element of 2.5% is an arbitrary figure, as the noble Baroness, Lady Altmann, implied. The case has been made by a number of bodies for reverting to an earnings/prices double lock, which was abolished by the incoming Conservative Government in 1980, but with a smoothed earnings link that would maintain pensions at an agreed percentage of average earnings while ensuring that they did not lose their value at times when inflation outstripped earnings, a point made by the noble Baroness, Lady Greengross.
One reason why I believe it is time to review the triple lock is the growing gap between pensions and benefits for working-age people and their children, which, as we have heard, have been subject to a decade of cuts and freezes. As the Centre for Social Justice and others have made clear, this is the context in which we have to understand the widespread support for the retention of the £20 uplift to universal credit.
Given the likely effects of such a cut on many people in vulnerable circumstances, is it not extraordinary that Ministers tell us there has been no impact assessment on the grounds that the £20 was temporary and therefore an assessment was not required? If there has been no impact assessment, how was it that a Whitehall official was able to tell the Financial Times that internal modelling showed that the impact will be catastrophic in terms of increased poverty, homelessness and reliance on food banks?
I ask the Minister, who I know is a humane person, to put herself in the shoes of a mother struggling to make ends meet. If she first claimed UC since the start of the pandemic, the uplift, which was very welcome, is all that she will have known. If she is a longer-term claimant, she will remember how much more difficult it was to manage before it was added. Either way, she would really struggle now.
Academic research and evidence from civil society groups shows both the difference that the £20 has made and that life on UC has still been a struggle with it. Most recently, a large, nationally representative survey of claimants undertaken by the Welfare at a (Social) Distance project showed that half of UC claimants were food insecure and a quarter severely so even before the removal of the uplift. Not only will removing the £20 push many more people into poverty, as the Legatum Institute and others have warned, but it is likely to worsen deep poverty as UC recipients are pushed further below the poverty line.
To make matters worse, as debated yesterday, the cut coincides with an increase in inflation, particularly in basics that represent a disproportionate chunk of claimants’ budgets. As the Resolution Foundation has pointed out, much of this increase will probably come too late to be incorporated into the uprating of UC based on the September inflation rate. Will the Minister undertake to look at how this problem might be addressed?
Ministers seek to justify the withdrawal of the £20 on the grounds that the priority must now be to get people back into reasonably paid work. Of course this is important, but nearly two-fifths of UC recipients are already in paid work and increasingly it is not providing an insurance against poverty. Also, as the New Policy Institute has shown, a significant proportion of recipients have caring responsibilities that limit the amount of paid work, if any, they can do. For instance, it is been estimated that more than 300,000 informal carers will be affected by the cut. Telling them to work extra hours to make up the loss is simply not realistic. Moreover, we know that hardship can undermine job-seeking efforts when energies are depleted by the exhausting struggle to get by on an inadequate income. There is evidence that the £20 has helped with job-seeking, so even in terms of the Government’s own priorities the cut is likely to be counterproductive.
The Government have tried to counter the growing pressure to retain the £20 by announcing a new temporary local authority household support fund—a fig leaf waved prominently by the Minister yesterday. A discretionary fund is not an appropriate, efficient or secure way to meet everyday needs that cannot be met because of the cut to benefits, as the former Secretary of State Sir Iain Duncan Smith has pointed out. Although talk of a possible cut in the taper is welcome, it will not target additional help on those in greatest need.
The Government have also tried to argue that the country cannot afford to maintain the £20 without a tax rise—indeed, according to the Prime Minister, “There is no alternative”. But the Centre for Social Justice has argued that the cost, which it suggests is in any case overstated by the Treasury, is not onerous and the consequences of withdrawing the money
“outweigh the benefits from any saving.”
Of course there is an alternative because the decision to withdraw the £20 is a political choice. The cost is but a fraction of the annual £36 billion or more that has been estimated had been cut from social security benefits pre-pandemic. The refusal to go some way towards making good that loss speaks millions about the Government’s priorities.
Not all benefit recipients benefited from the £20 uplift. Some lost out because of the benefit cap and others because they were in receipt of legacy or related benefits. The research on food insecurity, to which I referred earlier, found a sharp rise among the latter group during the pandemic but not among those who received the extra £20, which is significant. Disabled people in particular lost out as a result of the refusal to extend the uplift to legacy and related benefits. In this context, will the Minister say why the research commissioned from NatCen on the usage of health and disability benefits, which I understand was completed last year, has not been published or even referred to in the recent Green Paper Shaping Future Support, consultation on which has just ended? In an extraordinary exchange between the chair of the Work and Pensions Select Committee and the Secretary of State, the latter failed to give a reasoned answer to this question and the former suggested that the department may be in breach of government protocol on the publication of social research. The Government have certainly committed a breach of trust with the 120 disabled people who took part in the research in good faith, having been assured that the findings would be made publicly available.
What are the Government trying to hide? From the bid pack and the draft interview guide, it is clear that a wealth of data would have been generated about the extent to which the needs of those in receipt of health and disability benefits are, or are not, being met. Surely, as the Disability Benefits Consortium has argued, all this evidence should have been published to help inform the consultation on the Green Paper, which totally failed to address the crucial question of the adequacy of disability benefits. Will the Minister undertake to publish it now to inform the next stage of the process?
It is with this more general question of adequacy, which the noble Lord, Lord Freud, mentioned, that I want to conclude. I am very happy to echo the  words of another former Work and Pensions Secretary, Stephen Crabb, who suggested in the Commons that the £20 uplift constituted “a recognition that the” UC
“standard allowance … was too low to provide anything like a decent, respectable level of income replacement”,
and he warned:
“It is that question of adequacy to which I think we will return time and again”,
for
“Anyone who thinks that we have generous benefits in this country is wrong.”—[Official Report, Commons, 15/09/21; col. 1004.]
Indeed, the IFS described their level as,
“unusually thin by international standards”.
Two Lords committees have called for a review of benefit levels. The Economic Affairs Committee concluded that UC is too low and
“should be set at a level that provides claimants with dignity and security.”
The Select Committee on Food, Poverty, Health and Environment called for benefits uprating to take account of official dietary guidance to ensure that claimants can afford to meet it. It cited written evidence from the Government that suggested the current benefit rates:
“derive from a review in the 1980s,”
but that review did not consider the adequacy of benefit rates. Indeed, according to the late Professor John Veit-Wilson there has been no such review of adequacy since the 1960s.
We have had review after review of benefits, yet it appears no Government for more than half a century have asked themselves whether the rates they set each year actually meet claimants’ needs. The one independent benchmark we have, provided by Loughborough University for the Joseph Rowntree Foundation, indicates that UC rates are well below what the general public deem to be an acceptable minimum standard of living.
As Stephen Crabb underlined, the outcry over the withdrawal of the £20 uplift means it is high time that we considered the underlying question of benefit adequacy. A prominent slogan at the Conservative Party conference was “build back better”. Restoring UC to its original meagre level is hardly building back better for our fellow citizens living in some of the most vulnerable circumstances, nor is it consistent with promises of levelling up, as a number of Conservative MPs have pointed out. If the Government continue to refuse to do the right thing, at the very least they could now promise a proper review of benefit adequacy as the first step towards building back better for those struggling to get by.

Lord Flight: My Lords, I support the Bill, which reflects a common-sense appraisal of the issues. Covid has caused an artificial boost in wages and potentially an 8% rise in state pensions. While excluding wage increases from the increased formula—now limited to the greater of 2.5% and inflation—the inflation figure is still likely to provide a significant rise in state pensions.
From the Bill, it is not wholly clear what are the relevant years’ figures for calculation. Pension increases will be limited to the greater of inflation and 2.5% per  annum, but it is not clear whether the increased pension for 2022-23 will be based on the data for 2021-22 or 2022-23. I would be grateful if the Minister would clarify this. Whichever year it is, either inflation or 2.5% is likely to be lower than the increase in wages, but the rise in inflation in 2022-23 may be larger than anticipated. The impact of Covid is expected to cause an artificial boost in wages and the 8% rise if applied to state pensions is hard to justify in comparison with other groups.
The triple lock has been generous to pensioners. Since 2010, the state pension has increased by 35%, versus 22% for inflation and 27% for earnings. State pensions are now at their highest relative to earnings in 24 years. Relative pensioner poverty has reduced. The state pension bill for 2021-22 was £105 billion, up from £70 billion in 2010, before the triple lock was implemented. Some 60% of UK welfare spending is now on pensions. If the triple-lock formula was not changed, pensioners may have two years of high pension increases. The Government had to act to avoid this and to limit state pension increase costs. I have not encountered much criticism of the decision to cut to only two possible locks.
The point is made that the UK state pension is less generous than EU state pensions, but European pensions do not include most of the additional benefits for UK pensioners: tax-free pension contributions worth £50 billion per annum, free winter fuel allowance, free eye tests, free TV licences, free bus passes, free NHS treatment and no NI if you are working aged 65 or more. Relatively few UK pensioners now remain in absolute poverty.
The triple lock is an expensive and unsustainable policy in the longer term, which ill suits the present economic climate. There is surely a strong case in the future for scrapping pension locks and setting state pension increases in line with inflation. The existence of the three options, under triple lock, tends to deliver higher state pension increases than increases in wages, and those increases are in line inflation or of 2.5%. I hope the Bill will be treated by the House with appropriate inquiry.

Lord Hendy: My Lords, I rise to make a short point. The Treasury estimate is that the Government will save £5 billion next year by this change. That is to be added to the £6 billion that they save from not renewing the uplift to universal credit. That is £11 billion. Other noble Lords and noble Baronesses, in particular my noble friend Lady Lister, have described the impact that will have on the recipients of universal credit and pensioners.
I want to look at a point on the other side of the account book. This £11 billion is money that is spent by the recipients. It is spent in shops on goods and services. It is spent on food, clothes, heating and rent. It is all spent, every penny of it—or almost every penny of it. The names of the pensioners who are going to lose out on this are not names that you will find in the Pandora papers. This is not money that is stuck away, or invested in shell companies, banks or building societies. It is money that is spent in the local economy.  What assessment have the Government made of the loss of these billions of pounds to the local economies in which people actually live?

Baroness Noakes: My Lords, I do not like breaking manifesto commitments, so my support for the Bill is tinged with regret, but I do wholeheartedly support it. I am clear that Covid has created significant complications for the triple lock two years running. Last year, as we have heard, earnings growth was negative, which under the law should have resulted in a zero increase in pensions. My right honourable friend the Secretary of State for Work and Pensions brought legislation to ignore that and awarded a 2.5% increase. This year she has faced artificially high earnings growth and has wisely chosen to ignore that too, so she will make the determination based on the higher of 2.5% and CPI inflation. We should not look at this year in isolation.
I agree with my noble friend Lady Stowell, that the Bill is fair. In particular, it is fair to pensioners, whose income will be protected in real terms. Last year, their income increased above the rate of CPI inflation. This year it will be no worse than CPI inflation. Next year we should be able to return to the normal formula, so that if earnings growth continues, pensioners too will benefit. Noble Lords will know that this Government are committed to a high-wage economy, not a low-wage one. This is good news not only for those in work but also, through the triple lock, for pensioners as well.
While I support what the Government are doing in the Bill, I have never been keen on the triple lock, mainly because I believe that writing formulae into legislation is just a recipe for trouble. The last two years, in relation to pensions, are proof of that. We need to stop virtue signalling in legislation because good intentions often collide with reality and corrective legislation then serves to magnify the problem. So, I would take it out of legislation.
Some have tried to make a case that pensioners are particularly badly treated and that pensioner poverty is increasing, but those who do that tend to use selective measures of relative poverty and are highly selective about segments of the total pensioner population. If we look at absolute measures of poverty, there are 200,000 fewer pensioners living in absolute poverty than there were 10 years ago. We will probably never eliminate relative poverty, but we can and should focus on absolute poverty.
In addition, we should not look only to the basic state pension to ensure that pensioners receive an adequate income. In the long run, access to further pension income, by virtue of automatic enrolment, should be a significant element of pensioner income. In the short term, as other noble Lords have referred to, pension credit is important. As the noble Baroness, Lady Drake, pointed out, it is important not only for the increased income that it gives to some of the poorest old people, but also because it acts as a gateway to further significant benefits. It is therefore a real shame that the latest estimates from DWP show that nearly £2 billion each year is unclaimed and 1 million households are losing out.
I took part in the pension credit legislation when it was introduced in your Lordships’ House almost exactly 20 years ago. Two highly expert and redoubtable Baronesses—both no longer with us, sadly—were on the Labour Benches. On the Front Bench was Baroness Hollis of Heigham and behind her was Baroness Castle of Blackburn. Baroness Castle disliked means-tested benefits and knew that pensioners in particular worried about the stigma attached to claiming benefits. She worried—and she was very worried—that 20% would go unclaimed, a figure in line with other similar benefits at the time. Baroness Hollis refused to give the Government’s estimate for pension credit take-up. Baroness Castle must be turning in her grave at the fact that nearly 40% do not claim.
On our Benches, we pressed Baroness Hollis to say how the Government would ensure that pensioners got what they were entitled to without the Government incurring massive administrative costs. It is fair to say that we got no sensible answer to that question at the time and I believe that it still needs to be answered. The Government have said all the right things but I am not sure that their record on this is one to be proud of. Can my noble friend the Minister say what the Government’s strategy is for pension credit uptake and when we will see real improvements in the rate?
Covid-19—or rather the Government’s response to it—has had a massive negative impact on our economy that cannot be ignored. Support to individuals and businesses has cost over £400 billion and debt has risen to around 100% of GDP. While the economy is now recovering well, there is a lot of work to do to restore economic and fiscal health. In the meantime, the Government are going to have to make some hard decisions. In relation to this Bill, I believe that the Government have got it right with the state pension. It is a fair increase and a fair outcome for taxpayers.
Before concluding, I must say something about the universal credit uplift because several noble Lords have tried to drag the issue of its removal into this Bill. I believe that is a category error. It is quite unrelated to the level of the state pension and I sincerely hope that noble Lords will respect the narrow purpose of this Bill and not try to impede its passage towards Royal Assent.

Lord Sikka: My Lords, it seems that there is a competition among Ministers to find novel ways of hurting the most vulnerable people in our society. After the cut in universal credit, the hike in income tax through frozen allowances and the new Johnson tax of 1.25%, the Government are clearly gunning for senior citizens. They have already taken away the free TV licence for the over-75s and are raising the age for free prescriptions in England from 60 to 66. The next instalment of the triple blow for seniors is to suspend the triple lock. I cannot support this cruel Bill.
The average UK wage is around £31,461 a year. The full state pension at the moment is £9,350, but only four out of 10 retirees receive it. Some 2.1 million pensioners receive less than £100 a week in state pension, most of whom are women. The actual average state pension, as Age UK has just reminded us, is  £8,000 a year or roughly 25% of average earnings. This is the lowest among industrialised nations, with the average being around 60% in OECD countries. The Office for Budget Responsibility said that by 2022-23, the state pension would form around 4.6% of GDP. Germany already allocates 10% of its GDP to the state pension.
A 2019 study noted that despite the triple lock the proportion of elderly people living in severe poverty in the UK is five times what it was in 1986. This is the largest increase among major western European countries. A major reason for this, as has already been pointed out, is the legacy of the Thatcher Government, who broke the link between pensions and earnings by cancelling the 18% supplement provided by the Treasury. We have never really made up that lost ground. Will we ever make up the lost ground from this proposed suspension of the triple lock?
The low state pension condemns millions to a life of poverty, insecurity and early death. According to Age UK, despite the triple lock, 2.1 million pensioners—18%—in the UK live in poverty. Some 1.25 million of these are women. The poverty rate has risen since 2012-13, when only 1.6 million pensioners—13%—lived in poverty. Some 33% of Asian retirees and 30% of black retirees, compared with 16% of white retirees, also struggle to make ends meet.
Malnutrition—or undernutrition, as some people would call it—affects over 3 million people in the UK and 1.3 million of these are over 65. Around 25,000 older people die each year due to cold weather and here we are busily reducing their income.
Rather than lifting retirees out of poverty, the Government are going to suspend the triple lock. They say that they cannot afford whatever the cost is, which may be up to £5 billion. That is certainly less than the £8.5 billion subsidy given to profiteering train companies last year.
Governments have bailed out banks and provided £895 billion of quantitative easing to speculators. However, when it comes to helping senior citizens, the usual call is “We can’t afford it”—as though we can afford misery, squalor and early death. This is how the Government cheated 3.7 million women out of their promised state pension by raising the retirement age. The same slogans are being marshalled again.
Let us be clear. The Government can create any amount of money they wish to shape a society which is good for all of us. If that money creation is inflationary, they can remove some of it from the rich through redistribution—a phrase that all Ministers and the Prime Minister have carefully avoided, even during their party conference.
The extra £5 billion that is needed for the triple lock is already available. The 2020-21 cost of paying the state pension to 12.4 million retirees is £101.2 billion compared with £98.7 billion for 2019-20. If you look at the National Insurance Fund accounts for the year to 31 March 2020—the most recent information—they show a cumulative surplus sitting there of £37 billion. That is more than enough to meet the triple lock obligation of £5 billion. Will the Minister explain why this surplus is not being used to honour the triple lock?
The state pension, as has been pointed out, is a major—and in many cases the only—source of income for many people. It will be even more so in the future. Relentless attacks on workers and trade unions have sapped people’s ability to save for private pension schemes. Today, workers’ share of GDP in the form of wages and salaries is around 49.4%. It was 65.1% in 1976. That is the biggest decline in any industrialised nation over that period. Even before Covid, 14.5 million people were living in poverty. Household debt is currently £1.7 trillion. Young people saddled with student debt and astronomical housing costs are unlikely to accumulate wealth and will be forced to rely upon the state pension for their retirement.
The UK’s six richest people have wealth equivalent to that of 13 million citizens. The richest 1% have 23% of all wealth, the top 10% have 44% and the poorest 50%, who are being condemned to a low state pension, have just 9%; the poorest fifth of society have only 8% of the total income, and the top fifth have 40%.
The ministerial reply to one of my Written Questions on 21 January 2021 was that 18.4 million individuals in this country have an annual income of less than the annual tax-free allowance, which currently stands at £12,570. The Institute for Fiscal Studies states that
“only 58% of the adult population (those aged 16 or over) receive enough income to pay income tax”,
so 42% of adults pay no income tax because their income is already too low. How will they buy into these private pension schemes? Two days ago, during the debate on the Health and Social Care Levy Bill, the Minister said that 6.2 million people have earnings below the primary threshold for national insurance. How are these people going to save for so-called private pension schemes?
Even if impoverished people manage to put a few pennies into a pension scheme, the tax system works against them. At the moment, 1.5 million individuals are enrolled in a private pension scheme and receive zero tax relief because their annual income is less than the annual personal allowance. I hope the Minister will explain why people at the bottom of the ladder are being treated this way and not getting any help whatever.
This is a stark reminder of the inequalities in the UK. Present and future generations will rely upon the state pension more than ever before, and it is vital that it does not condemn them to poverty. I am opposed to suspension of the triple lock.
The state pension is too low. In July this year, we heard the Prime Minister say that he finds it hard to live on his £160,000 salary; last week, Peter Bottomley MP said that he cannot really survive on an MP’s salary of £82,000. My reply is that they should try living on the £8,000 a year state pension and see how they get on—welcome to the real world. Perhaps the Minister would want to take up the offer of living on the state pension—I do not know, but I await a reply. We must lift retirees out of poverty and not only maintain the triple lock but go beyond it. We need to align the state pension with the living wage, and that should be enshrined in a future Bill of Rights. Nobody in a rich country should be living on such a low income.
I have already pointed out that the Government have plenty of resources to achieve these aims. They could utilise the £37 billion surplus in the national insurance fund; they could restore the 18% Treasury supplement which was removed by the Thatcher Government. They could find the money by taxing capital gains in exactly the same way as earned income, which would raise £17 billion a year more and another £8 billion in national insurance contributions—at the moment, unearned income is exempt from national insurance. They could tax dividends in the same way as earned income, which would raise another £5 billion in taxes plus another £1 billion in national insurance. They could extend the current 12% rate of national insurance contributions to earned incomes above £50,300, which would raise another £14 billion a year. The Wealth Tax Commission told us earlier this year that, with an asset threshold of £2 million, a wealth tax could raise up to £80 billion a year. Billions could also be raised by extending the scope of financial transactions tax.
These few examples show that the Government’s claim of not being able to afford the triple lock has no substance. It is a bogus claim which simply falls apart when examined. None of the examples that I have given requires an increase in the basic rate of income tax or the 40% rate of income tax, or an increase in national insurance contributions for the masses. It seems that the Government lack any will. They find it so easy to hurt the most vulnerable people, and that should not be accepted by anybody in the country. I will not support this Bill in any way whatever.

Lord Shinkwin: My Lords, I fully support the primary purpose of this Bill, subject to the proviso that these measures are for one year only. The Government’s message to pensioners is clear: we support you and we will take account of your circumstances—for example, if you are on pension credit.
I echo my noble friend Lord Freud and the right reverend Prelate the Bishop of Durham in their implicit suggestion that this Bill also serves another important purpose. For me, as a disabled person, it provides the Government with the perfect opportunity to send a similar message of support to disabled people: namely, that we will support you to live your life independently and to realise your potential. My fear is that, by removing the £20 per week uplift to universal credit, or UC, the Government are sending the opposite message. We risk saying to almost half a million disabled households—according to figures from the Legatum Institute—that we do not actually care if you are plunged into poverty.
I welcome this opportunity to congratulate the Minister for Disabled People, Chloe Smith, on her appointment to her new role, but I do not envy her the task that she has inherited. I am referring, of course, to the aftermath of the publication of the Government’s National Disability Strategy. As missed opportunities go, I am afraid that it does not get much bigger. The strategy was an opportunity to reset completely the Government’s relationship with disabled people. Regrettably, it was squandered. The strategy was little more than yet another list of planned consultations, reviews and half-hearted commitments.
A commission which I chaired, made up of senior businesspeople from the private sector, academics and disability rights campaigners, produced a report specifically to feed into the strategy. Our report contained well over 100 exhaustively researched and oven-ready measures. The title of the report was Now Is the Time. In response, the title of the Government’s strategy might just as well have been “Now Is Not the Time”—not the time for equality of opportunity, not the time for ambition and not the time for the promised transformation of the lives of the UK’s more than 14 million disabled people.
I put it to my noble friend the Minister that now is indeed the time, in this Bill, to, at the very least, offer some reassurance to disabled people that their concerns about the end of the UC uplift have been heard and are being addressed.
Research to which I have referred shows that, of the 840,000 households projected to fall back into poverty by the ending of the UC uplift, 450,000—over half—include a disabled adult or child. Given that disabled people make up only 20% of the population, the impact of the removal of the UC uplift on disabled people is so disproportionate that it practically beggars belief. So I ask my noble friend the Minister if an impact assessment was done specifically on this, and, if so, that she put a copy in the Library. If one was not carried out, I would be very grateful if she could say why not.
The Government need to join the dots and decide what message they want disabled people to hear. I applaud the Prime Minister’s levelling-up vision of giving everyone the chance to realise their potential. Of course he is right, but is that what disabled people are actually hearing in practice when they are hit by the double whammy of the end of the UC uplift and the increase in tax if they are in work? Is that the message that they are getting from a national disability strategy, spun to the media with the headline figure of £1.6 billion—less than 1% of which is actually new money—which lacks a road map towards the measurable outcome of equality of opportunity? For me, as a Conservative, that surely must be our goal, rather than damaging the legacy to which my noble friend Lord Freud referred.
In conclusion, the Government need to seize the opportunity that this Bill presents to reset their relationship with disabled people, starting with a rethink of the impact on them in particular of the end of the UC uplift. I look forward to my noble friend’s response.

Lord Desai: My Lords, it is an eternal message: to him who has shall be given more, but from him who does not have will be taken away what little he has.
We have money to give people stamp duty holidays but we do not have money to retain the £20 allowance that people on universal credit were given. We always have money to buy banks that are going bankrupt. Remember that, in 2008, we bought banks that had more or less mismanaged their affairs, such as the Royal Bank of Scotland and Lloyds Bank; money was there to buy those banks—no questions asked, and nothing examined about whether it had been right or  not—because they were rich, and the rich can always be saved. We have just had a report that test and trace cost billions, and that a lot of money was wasted. Why? Because the people involved were friends of the Government.
It is only an issue when it comes to the poor. First of all, the Government boast about the triple lock and get a lot of kudos for being very generous. What is wrong with giving 6.6%? If earnings are rising by 6.6%, that is good, so let us give 6.6%. It is not going to break the bank or bankrupt the Government. We already have a 100%-plus debt-to-GDP ratio, so what is a couple of billion more? It will get lost in errors and omissions. It is the will that is lacking. These are not the Government’s votes and these are not the Government’s friends. Their party was not created to help the poor.
Whatever they may pretend, this is a disgraceful Bill, as the noble Lord, Lord Sikka, said. A tax of 1.25% has already been put on national insurance and it will, as I said, be increased to 2.5% in no time whatever.
On the other side, we are not willing to give even 6.6% for one year. When a promise is made, in order to fulfil that promise you have to take the consequences of what you said. You cannot say, “We have a triple lock but will give only the lowest of the three numbers because we really can’t afford to give poor people any more money. We have far too many rich people waiting to claim, and they are our priority.” I see no excuse whatever for making promises that seem generous and then, when push comes to shove, for the flimsiest reasons, not fulfilling the promise: “Oh, no, we didn’t actually mean earnings. We only meant 2.5% or less.” Why do they not say that the triple lock means that the lowest of the three will be given, because that is what was always intended? “We don’t intend to give the poor any more money but, since we have to, we shall give the least that we can afford. We prefer of course to give nothing but, since these people are around, we will give them some money.”
Gas prices are rising. If the rate of inflation goes to 6% or 7%, will the Government fulfil their promise to raise it by the rate of inflation, or will they say, “We didn’t mean that, not 7% inflation; 2.5% is the best we can do”? Why do they not stop pretending and say that zero is what they will give people in need because their friends in the gas companies are going out of business and the Business Secretary has said he will arrange with the Treasury to bail them all out? All the gas companies that face bankruptcy will be bailed out but the poor will not be bailed out. That is the logic. Unfortunately, that is the world we live in.
When election time comes, they will become generous, and then after the election the promises will be broken. That is the way it is, and I think that will continue in this levelling-up business. I do not know who they are levelling up; certainly not those in need.

Baroness Stroud: My Lords, it is interesting that this is the Social Security (Uprating of Benefits) Bill. It could have been a Bill on pensions and the uprating of benefits, but it is not; it is the Social  Security (Uprating of Benefits) Bill. While much of the discussion today has been focused on the triple lock, as has been implied, I want to focus on a different element of social security: namely, the universal credit £20 uplift. In a recent poll undertaken by iPolitics, only 3% of the British public said that the cut should come in this year and at this time. This is a staggeringly low number, particularly in the light of the twin instabilities caused by the rising cost of living and the global pandemic from which we are just emerging.
Let us just take a moment to look at each of the arguments put forward for dismantling the uplift and those against. I have heard it said by many that this £20 was for a crisis moment only, but we need to be honest here. The reality is that the pandemic made visible what had been invisible to many: that our safety net is in fact at its lowest value ever since its creation. Having been founded at 20% of the median wage, it is now at a value of 12%. This became visible to people whose lives would normally never have been touched by the welfare state, so the Government stepped in to protect new claimants and the public at large from being shocked by the level of welfare. But it is right to be shocked by the level of welfare, which creates a permanent state of crisis for many. Let us not delude ourselves that the crisis is over, particularly as energy prices and inflation both rise, creating a perfect storm.
We have an opportunity to think again and do something about this in the Bill. All six Conservative former DWP Secretaries of State since 2010 have written to say that this £20 uplift investment should remain. I have heard it said that the £20 uplift has to go to protect work incentives. This is a totally specious argument if you understand anything about universal credit. It may be an argument for increasing the work allowance, or lowering the taper rate, but it cannot be an argument for protecting work incentives. The work allowance always makes it pay to take work, and the taper rate always rewards progression in work. To be honest, if you wanted to strengthen work incentives, you would put the £20 into the work allowance and lower the taper rate from 63% to 60%, or even 55%, as was in the original design.
I have also heard it said that there are no poverty impacts from the removal of the £20 uplift. To be honest, this is the most staggering of all arguments. It can be said in only a technical sense because, in 2016, the Government abolished their official measure of poverty and have yet to replace it. But, by any measure of poverty, relative or absolute, if you take £20 a week away from those on low incomes, a proportion of them will move into poverty. If you use the measure recommended by former Secretary of State for the DWP Amber Rudd, the Work and Pensions Committee chairman, Stephen Timms, and the Office for National Statistics—namely, the Social Metrics Commission measure of poverty, in which I declare an interest—to analyse the removal of the £20 uplift, you will see in the cold light of day the impacts on 840,000 people, 290,000 children and 450,000 people in a family that includes a disabled person, either an adult or a child. Granted, a proportion of these will take the 1 million available jobs, and many will take advantage of any upskilling that is available, building this high-wage, high-skill economy.
But if the Government really believe their own narrative, they know that they would never need to pay the £20 uplift because people would move beyond it. The fact that they say that they cannot afford the £20 uplift reveals that they know that it will take time to get there and, in the meantime, many vulnerable households will experience a cost-of-living storm and very real hardship.
But my real concern is for those to whom we say, “The welfare state is your safety net”: those with disabilities that my noble friend Lord Shinkwin so eloquently referred to and those with children aged two and under, with whom we have a social contract. We say, “You are valued by our society, and we want to support you, even though we do not expect you to work”. Those in this group have just lost £20 per week, are not expected to work and are about to experience rising inflation and higher energy bills in the midst of a pretty dark winter. If we do nothing else, the £20 uplift must be restored for this group. My other concern is that this seems to be news to those in government when I tell them, although not to my noble friend the Minister, who has spent a lifetime seeking to protect those who are vulnerable.
What is to be done? I have, first, a question for the Government and, secondly, a possible way forward. Following my noble friend Lady Altmann’s speech, I have a question: could my noble friend the Minister clarify whether there are any savings from the Bill and, if so, what figure is being scored? My understanding is that there are no or low savings scored against the Bill. It has been laid before this House because of a concern that earnings are at around 8%—but it is also my understanding that the Treasury and OBR earnings are scored at 4.9% and that the ONS adjusted earnings may even be as low as 3.2%. Given that CPI is anticipated to be about 3.2%, apart from the Bill possibly being unnecessary, there appear to be no or low savings connected with it.
However, it is also my understanding that, were the Bill to be delayed, the basic state pension would be uprated by actual earnings, at about 8%, in which case, by the DWP’s own admission, savings would be worth between £4 billion and £5 billion, which could be reinvested into UC, were it to be saved. It would help those of us seeking to lay amendments, and those advising us, to have an accurate understanding of the savings from the Bill.
I now move to a possible way forward. It is no secret that I am seriously concerned about the removal of the £20 uplift, but I am also really concerned about the democratic deficit connected with the removal of this uplift. The removal of it was brought about by the sunset clause on secondary legislation, which means that it just died, without a vote in the other place. If Brexit was about anything, it was about taking back control—about active democratic decision-making. If Members of the other place actively want to make this choice to let the £20 uplift die, then this House would respect that, but it should be an active choice because they are the ones answerable to their constituents.
So it is my understanding that there are two ways of giving the other place this active choice. One is through an amendment to the Bill, and the other is through an  amendment to the process Motion of the Bill. Either way, it is likely that there will be much discussion about scope and precedent but, ultimately, scope and precedent are servants of the democratic process, and this is a social security uprating Bill, not just a pensions uprating Bill. This is a self-governing House, and this is a moment for us to work across party divides to uprate our social security in order to protect the most vulnerable of this nation at a time when the cold winds of inflation and high energy bills are swirling around them. If there is a way to bring forward such an amendment—and I believe that there is—it is my intention to do so in Committee.

Baroness Janke: My Lords, it is always a great pleasure to follow the noble Baroness, Lady Stroud, with all her knowledge and experience in this field. I very much support her arguments and hope that we can, through the Bill, create an opportunity for the Government to think again. I also pay tribute to all other noble Lords who have argued for the reinstatement of the £20 uplift: the noble Lords, Lord Freud, Lord Desai and Lord Shinkwin, the noble Baroness, Lady Lister, and, of course, the right reverend Prelate the Bishop of Durham, who has long campaigned for changes to benefits. All have eloquently stated the case, and we on this side will give our full support to them in seeking to restore this.
I first thank the Minister for her engagement with us all in preparation for the Bill. As others have said, it seeks to amend the triple lock for the second time, albeit temporarily, for another year. As my noble friend Lady Smith said, the triple lock was a key Lib Dem achievement during the coalition. It is an essential tool to protect pensioners from the effects of the devaluation of the state pension, which has occurred since the loss of the link with earnings in 1979. As the noble Baroness, Lady Drake, and the noble Lord, Lord Davies, said, it has improved things, although it has been slow. I would not agree that it needs to be reviewed; it needs to stay because it still has to do its job.
I also welcome the Government’s declared commitment to the triple lock and, like others here today, I would very much welcome an assurance from the Minister that the Bill is no more than a temporary measure. The noble Baroness, Lady Drake, was particularly keen to have that assurance, while the noble Baroness, Lady Stowell, made a strong case for older pensioners, who are usually poorer, and the need for their confidence in messages from the Government when looking to the futures of their children and grandchildren. I would certainly support her request for a review of the taper of universal credit. My noble friend Lady Smith would like an assurance that this is not just another “temporary measure” being brought in under the curtain of the need to do things differently as a result of the pandemic.
In supporting the triple lock, I would say there are usually three main reasons given for abandoning it. The first is the idea that pensioners are now so well off that they do not need it; secondly, that young people are losing out compared with the elderly; and, thirdly, that the country cannot afford it. As others have said, there are 2.1 million pensioners in poverty who depend  on the state pension and very many others who are far from being well off. Allowing the state pension to devalue will severely impoverish them further. If many pensioners are rather too well off, surely progressive taxation is the way to ensure that they are not gaining excess advantage at the taxpayer’s expense.
As far as young people are concerned, many will not have the benefit of private pensions and will depend upon a state pension. They will benefit only from a state pension that keeps its value and will suffer enormously if the state pension is allowed to devalue, as it did before 2010.
The UK has one of the lowest pensions in Europe, as the noble Lord, Lord Flight, mentioned. In the UK, spending on it is 5.9% of GDP; the Office for Budget Responsibility suggests that will increase to just under 8% in 2057-58. In many European countries, investment in pensions is much higher. In Germany, for instance, it is 10% of GDP. The noble Lord also made the point that other countries do things slightly differently, but I point out to him that they also make similar benefits available to their pensioners, as we do in this country.
The measures in today’s Bill need a second look by the Government. Since the Bill was debated in the House of Commons, some circumstances have changed. A key development is the surge in price inflation. The new chief economist at the Bank of England has warned of higher inflation being around for longer than previously thought. Current predictions from the Bank of England put inflation at 4% for the last quarter of 2021 and at over 4% for the first two quarters of 2022.
The September inflation figure will not capture any of the following: increases in energy prices which happen between September 2021 and April 2022, when the pension increase is paid; the April 2022 council tax increase, when councils are already talking about extra increases next year because of social care cost pressures and the expectation that local government is unlikely to receive a particularly generous settlement, despite council services having been cut severely over recent years; and other inflationary pressures, perhaps arising directly from the energy price hikes as the supply chain becomes more expensive, which will feed through into food and other prices. Given that food, energy and council tax are likely to account for a lot of the spending of pensioners, and older pensioners in particular, inflation by next April is bound to be higher than this September, as the Bank of England predicts. As a result, if the Bill is not amended it will condemn pensioners to a cut in their real standard of living. They cannot just work an extra two hours, as the Secretary of State famously recommended to people affected by the universal credit cut.
I support the noble Baroness, Lady Altmann, in her request for a comprehensive review of pensions and would examine her suggestion of looking at the adjusted earnings figure. I certainly do not believe that what is contained in the Bill is fair to pensioners, as the noble Baroness, Lady Noakes, does. I will just touch on the point made by the noble Lord, Lord Hendy, about the importance of people having money in their pockets if they are to make any contribution to any economic recovery following the pandemic.
We have heard the reservations of many Members about these measures and, in the changed circumstances we now face, the Government need to take the necessary time to revisit these proposals. I hope that during Committee we will agree amendments that will not impoverish the poorest pensioners, who may be facing unprecedented external financial pressures, and arrive at a realistic increase that will ensure the newly emerging pressures are fully taken into account.

Baroness Sherlock: My Lords, I thank the Minister for her introduction to this debate, and for her briefing and access to her officials. What a great debate—the House has come back in fine form. Once again, I have learned a huge amount from so many noble Lords. I will be going back to read the Hansard and do my homework before I reappear; I encourage the Minister to do likewise, as we are in for an interesting Committee stage.
My noble friend Lady Drake got us off to an amazing start with that wonderful look back over the history of pensions. Holding in front of us what the point of pensions policy is incredibly important.
As we heard, this Bill is needed so the Government—just for a year, we hope—can suspend the earnings-related part of the triple lock. But not only does this give today’s pensioners a lower pension next year than they expected; it bakes in a lower value of the state pension for them and for all generations in future. As many noble Lords have said, the state pension in the UK is comparatively low—not surprisingly, given we devote a smaller percentage of GDP to state pensions and pensioner benefits than most advanced economies, a point made by my noble friend Lord Sikka and the noble Baroness, Lady Janke.
The last Labour Government introduced pension credit and then, from 2002, committed to the double lock of raising the state pension by the higher of 2.5% and inflation. The impact on pensioner poverty was clear and I am willing to face down the noble Baroness, Lady Noakes—terrifying though she is—by standing up for relative poverty as the global measure which is widely recognised. Using those official figures, when Labour came to power in 1997, 29% of pensioners in the UK were living in poverty. When we left office in 2010, 14% of pensioners in GB were living in poverty. Sadly, those gains went into reverse pretty quickly. Pensioner poverty started to rise in 2012 and by last year, 18% of pensioners were once again living in poverty. To put it in numbers, that is an estimate of over 2 million poor pensioners, including over 1 million in severe poverty. The context for any change to the state pension is a growing problem of pensioner poverty.
Pension credit is key. I loved hearing the noble Baroness, Lady Noakes, talking about Baroness Castle of blessed memory and my late and much-loved dear friend Baroness Hollis, who would have been here. Your Lordships can only imagine the speech Baroness Hollis would be giving today. The Minister must at least think she has been spared that, but we all miss her and wish we were here to hear it. What a joy it would have been.
However, I have to do my best. On my bad days, I just channel Baroness Hollis and I will try to bring forward what she might have said in this debate.  One thing she would have done is to push the Minister, irrespective of history, on what has been done about the take-up of pension credit. Six out of 10 is absolutely disgraceful; 40% of those pensioners are not getting the money, the TV licences or the passported benefits. What are the Government doing about it? Can the Minister bring us up to date?
As my noble friend Lady Drake and others mentioned, the triple lock applies only to the flat-rate state pension, not to the second state pension or pension credit. So far, the Government have passed through the triple lock increases so that the same cash amount in the state pension increase was put on to pension credit. But of course that means even when the state pension keeps up with earnings, pension credit does not. It is a larger amount and therefore a smaller percentage, so the pension is not keeping up with it. Can the Minister explain the rationale for not having pension credit in the pensions lock, and tell us why the Government decided to do that?
As we heard, the Government came to power on the back of a manifesto promise to maintain the triple lock. Let us look at the argument for ditching it now. The Secretary of State said:
“This Bill will ensure that a temporary statistical anomaly in wages does not unfairly track across into pensions”.—[Official Report, Commons, 20/9/21; col. 62.]
The reference period for earnings growth for the triple lock is the year-on-year change in average weekly earnings for the period May to July, which, as we have heard, was 8.3% this year. There seem to be two key drivers for that high rate. The first is the base effect. In May to July last year, many workers were on furlough or had their hours reduced, pushing down weekly wages. This year, with fewer people on furlough and hours getting back to normal, weekly wages are higher. So the increase is higher year on year. The second is “compositional effects”, which are about the make-up of the workforce. During the pandemic, more low-earners lost their jobs, so the average of the weekly wages of those who were left was higher.
The ONS did some modelling on this, stripping out both the base and the compositional effects, a point referred to by the noble Baroness, Lady Altmann, and it came up with a range of 3.6% to 5.1%, representing underlying earnings growth. Presumably the Secretary of State could have chosen to use a figure in that range had she wished. Since it is primary legislation, she can legislate for whatever she wants. It is not as though she could be JR’d on previous legislation; she is creating the legislation. Why did the Government not think about using that? They could also have looked at other ways of modelling earnings growth; for example, over a longer period, which I raised last year when we were discussing the emergency Bill. Why did the Government reject those alternatives?
The Secretary of State for Work and Pensions has been at great pains to assure us that while earnings growth might look enormous, it really is not, because of base effects, compositional effects, Covid and so on—it is barely visible to the naked eye; it is tiny. Unfortunately, at the same time, the Prime Minister was going around television studios saying that earnings growth was enormous. I quote him:
“Never mind life expectancy; never mind cancer outcomes; look at wage growth.”
It cannot simultaneously be racing ahead of inflation or be misleading and in fact tiny. Can the Minister tell us which it is? Is wage growth racing ahead of inflation or is it barely inching up and not really there at all, with nothing to see?
While we are on the subject of working-age incomes, we have to talk about universal credit. I am sure the Minister did not really expect to get through the Bill talking only about pensions; if she did, she will have been disappointed. She will have heard the extraordinary concerns expressed around the House. I know that I have been banging on about the 20 quid for a long time, but it is not just me—this is coming from every Bench in this House. It is coming from the right reverend Prelate the Bishop of Durham. Everywhere I go, people raise it with me and talk about it all the time. That is because nearly 6 million people are losing a lot of money. Everybody has heard about it and people know that they cannot afford to do that.
It was a delight to welcome back the noble Lord, Lord Freud. In a fashion, the band is getting back together again. I have missed disagreeing so dramatically with him over so many years, but now he comes back and I am agreeing with him. It really is not fair. The noble Lord absolutely hit the nail on the head. As I said at the beginning, the welfare state is there to support people, for example, when they lose their jobs, but the only reason why the Government had to stick extra money into it when the pandemic hit was that they knew that it was not enough to live on. If it had been enough to live on, presumably it would have done its job perfectly well—that is what the automatic stabilisers in the economy are for. The point is that the Government knew that so much money had been taken out of the system that it was not enough to live on, and they had to do it. I do hope that George Osborne reads today’s Hansard—I think I might send it to him. Where is he now? Is he at the Standard? I will send him a copy just in case he misses it—I would hate that. But it really is a powerful point.
The Economist says this week:
“The loss of £1,040 a year is the biggest single cut to social security since the foundation of the modern welfare state.”
That is quite a hit. I was glad to hear the noble Lord, Lord Shinkwin, and my noble friend Lady Lister trying to crack this issue that jobs are just the answer. I have a rant which I do, sadly, even at dinner parties as well as in politics. The whole point of the welfare state and of in-work benefits, of universal credit and tax credits before it, is that they are there not just to supplement low hourly rates; they are there because a lot of people, as a result of their circumstances—they may have disabilities, caring responsibilities or young kids—cannot earn enough in the hours they can supply to meet their outgoings, but the state wants them not to starve and to be connected to the labour market and to stay that way if they can. Talking just about jobs is deliberately misleading when so many people are either in work or are not able—I shall stop the rant there; the point has been made well enough by others before me.
All this is happening at a time when Britain is facing a cost of living crisis. Poorer families spend more of their income on food and fuel. As my noble  friend Lord Hendy said, the point is that they spend this. Not only has this money been taken away from those families; it has been taken out of economies all around the country. I live in County Durham, where a lot of money has been taken out of the local economy. People who have this much money have to spend every penny; they cannot afford to save it, so it is hitting the economy as well as their pockets. The £20-a-week cut is happening just as food prices are going up and fuel costs are sky-rocketing, and in the run-up to a rise in national insurance, which also hits people of working age. The Economist analysed government forecasts and suggested that real-terms household net incomes are heading for the longest decline since the mid-1970s. Things are getting bad out there. The Government should not have cut this. I hope they are listening very hard to the message around the House.
I come back to the specifics of the Bill. Some people are affected both by the universal credit cut and by this Bill, because they are couples where one person is over state pension age and the other is under. Can the Minister tell us how many people are in that position? What assessment has she made of the impact of the Bill on pensioner poverty and on the number of pensioners heading for fuel poverty this winter?
We on these Benches understand the difficult situation with the anomaly in earnings, but it is surely up to the Government to find a way to deal with that while maintaining the earnings link to which they committed. That means being transparent about what is going on. When the Secretary of State announced the change, she reminded the House that she had had to legislate last year because earnings were negative. I will let the Minister explain the details to the noble Baroness, Lady Smith, but, essentially, if earnings are negative, the Government cannot apply the triple lock at all because there is not the provision in the original legislation, so the Secretary of State was right to do that. She said:
“This year, as restrictions have lifted and we experienced an irregular statistical spike in earnings over the uprating review period, I am clear that another one year adjustment is needed”.—[Official Report, 7/9/21; col. 185.]
Last year’s Bill set aside the earnings link because, otherwise, Ministers could not have increased pensions at all, as earnings growth was negative. The implication is that this is just a similar move this year, but let us be clear: last year, the Government rushed through emergency legislation so they could keep their manifesto commitment to the triple lock. This year, they are rushing through emergency legislation to break their manifesto commitment to the triple lock. They are not the same thing. There is a question of trust here and, I have to say, this is the third time in a few months. It is telling which manifesto commitments get dropped. There is something about priorities going on here. First, we had the overseas aid cut, then we had the national insurance rise, and now we have the triple lock, which Ministers repeatedly said they would protect. This Bill may be for one year, but we will be watching like hawks to see whether the Prime Minister and the Chancellor come back for more. As the noble Lord, Lord Freud, knows to his cost, once Prime Ministers and Chancellors get into the habit of dipping into the welfare budget like it is some sort of piggy bank which  they can raid for their favourite projects, they tend to come back again and again, because that is what they have been doing up until now. It will not happen again if this House can do anything about it.
We will drill down into all these issues and more in Committee so that the House can understand the impact of the Bill and its interaction with other government decisions that are being made at the moment and have been made in the recent past. For today, I thank all noble Lords for a brilliant debate. I hope the Minister can answer the questions put to her and give us some assurances. I look forward to her reply.

Baroness Stedman-Scott: My Lords, I thank all noble Lords who have spoken today. Their contributions have been eloquent and focused. The House has great knowledge of and experience in pensions and social security, which has truly been demonstrated today.
The debate has been wide-ranging and has covered a number of topics. I want to address some of the key points that were raised. If I do not manage to cover them all, noble Lords have an undertaking that I will write after this Second Reading and we will meet again, when they will have further opportunity to drill down into the detail.
I reiterate that this Bill is not concerned, although noble Lords are, with benefits linked to prices, such as universal credit. Uprating decisions for those benefits will be made under the existing provisions in the Social Security Administration Act 1992 as part of the Secretary of State’s annual uprating review in the autumn. The UC points that noble Lords have made are out of scope of the Bill, but out of respect for those who have raised the issues, I will endeavour to respond to them all. They will then be brought before both Houses through the annual uprating order, which is subject to the affirmative statutory instrument procedure and it would not be right for me to pre-empt that review.
The Bill sets aside the link between earnings growth and the uprating of the basic state pension, the full rate of the new state pension, the standard minimum guarantee in pension credit and survivors’ benefits in industrial death benefit. It does this for 2022-23, and for 2022-23 only. In place of the earnings link, it requires the Secretary of State to increase the relevant pensions at least in line with price inflation, or by 2.5%, whichever is higher. We have discussed the reasons for this approach linked to the unique effects of the Covid-19 pandemic over the last two years of earnings growth.
The noble Baroness, Lady Drake, raised the 1979 pension level. It is difficult to make comparisons back to 1979, when price indexation was introduced—the pensions landscape has changed significantly since then. She also asked whether the state pension was fit for purpose. The new state pension forms a clear foundation for individuals’ private savings to provide for the retirement they want. Together, the new state pension and automatic enrolment to workplace pensions provide a robust system for retirement provision for decades to come. The overall trend in the percentage of pensioners living in poverty is a dramatic fall over  recent decades: there are 200,000 fewer pensioners in absolute poverty, both before and after housing costs, than in 2009-10, and we want to maintain that achievement.
The phasing out of the triple lock was raised by the noble Baronesses, Lady Sherlock and Lady Drake, my noble friends Lady Altmann and Lady Stowell, and the noble Lord, Lord Davies. After that, the legislation will revert to the existing requirement to increase these rates at least in line with earnings growth. The noble Baroness, Lady Smith, suggests that this may change because of Brexit. No, the link with earnings will apply.
I pay tribute to the noble Baroness, Lady Greengross, for her commitment to the more mature in our society and her consistent efforts to represent them. The triple lock commitment was raised by the noble Baronesses, Lady Greengross, Lady Drake and Lady Smith, my noble friend Lady Stowell and the noble Lord, Lord Davies. The Bill needs to be seen in the context of the Covid-19 pandemic and the Government’s approach over the two years of the pandemic. After this year, the legislation will revert to the existing requirement to uprate at least by earnings growth, and the Government’s triple lock manifesto commitment remains in place—there is no turning back.
The noble Baronesses, Lady Sherlock, Lady Lister and Lady Smith, raised the possibility of a poverty impact assessment. They asked whether the department had produced an assessment of the effects on pensioner poverty of increasing these rates by 2.5% in 2021-22 and then by 2.5% or in line with inflation, whichever is higher, in 2022-23. The department collects and publishes a wide range of data on income and poverty, which are released annually in the reports on Households Below Average Incomes and a report with estimates of pensioner poverty covering 2021-22 and 2022-23 will be published in 2023 and 2024 respectively. In the absence of actual data, the only way to provide an assessment would be to forecast and model how many pensioners might have their income lifted above the various low-income levels under an earnings uprating versus an inflation uprating. Assumptions would need to made about how each individual pensioner’s income will change in the future under each scenario. This would require making assumptions about, for example, how each pensioner might change their behaviour around other sources of income, such as draw-down of income from investments or a change in earnings when faced with different amounts of state pension, which is virtually impossible to do with accuracy. These projected incomes would then need to be compared to projections of the various income thresholds, which are themselves extremely uncertain.
For absolute poverty, the threshold is increased each year by inflation during that particular year. As demonstrated in recent months, inflation is currently extremely volatile and there is a high level of uncertainty about what its level is likely to be over the next year. For relative poverty, the threshold is determined by changes in median income across the whole population. Given the volatility in the economy and labour market, again this is impossible to do accurately. Therefore, there is a very high risk that any analysis seeking to  forecast the number of pensioners moving above or below these projected poverty levels is likely to be misleading, due both to uncertainty about the economy and pensioners’ behavioural response to various levels of state pension.
I know that the noble Baroness, Lady Sherlock, has been waiting for this figure: drumroll—I am going to give it to her now. She asked specifically how many couples in receipt of universal credit include a partner in receipt of a state pension. We estimate this number to be around 50,000 mixed-age couples claiming universal credit in 2022-23.
The noble Baronesses, Lady Sherlock, Lady Janke, Lady Drake, Lady Greengross and Lady Lister, and my noble friend Lady Noakes, all raised the issue of pension credit take-up. We have had debates about this in the House and I promised to take action, which we have done. I know how passionate all noble Lords are about increasing pension credit take-up—I am in that club too. The Government are working with partners to raise awareness of pension credit and the department conducted a media day in June with support from Age UK and the BBC, in particular. We continue that engagement with the BBC, and I met the Minister for Pensions and the director-general of the BBC a few weeks ago to discuss how we can do even more to encourage people to claim what they are entitled to. I am no expert in social media, but I will take away the point made by the noble Baroness, Lady Greengross, and raise it. Furthermore, the Minister for Pensions and I held a stakeholder round table in May. Following that, the department established a working group involving organisations such as Age UK, Independent Age and British Telecom, as well as the BBC, to explore innovative ways to reach eligible pensioners. The group will meet again on 19 October.
We are also improving our direct communications. Earlier this year, more than 11 million pensioners in Great Britain received information about pension credit and this highlighted that an award of pension credit, as has already been said, can open the door to a range of other benefits, such as housing benefit, help with council tax and heating bills and help with NHS costs, as well as a free TV licence for the over-75s. We will continue to do this work and will be encouraging people in every way we can to claim their entitlements, building on some promising recent figures. According to the latest data, for the financial year ending in 2019, 77% of the total amount of the guarantee credit—the safety-net element of pension credit—that could have been claimed was claimed, up from 66% two years previously.
My noble friend Lady Altmann and the noble Baroness, Lady Lister, raised the possibility of a review of the triple lock. I must say that the Government have no plans to undertake a review; we are committed to the triple lock for the remainder of this Parliament.
An important issue raised by many noble Lords concerns a different measure of earnings. Several noble Lords asked why the Secretary of State does not use her discretion under the existing legislation to use an adjusted index of earnings growth to exclude the effects of the Covid-19 pandemic, or why the Government did not include such an adjusted index in th Bill. The answer is that there is no robust methodology for  establishing such an adjusted index. The existence of such a methodology would be crucial in assessing the degree of legal risk attached to veering from the conventional index, which continues to provide an accurate reflection of growth in earnings.
The Office for National Statistics has not published official statistics for any alternative estimates of earnings growth; it has published just a range of estimates of the potential scale of base and compositional effects caused by the Covid-19 pandemic. However, it has concluded that there is no robust method for producing a single figure for a measure of underlying wage growth that accurately takes account of temporary effects due to the pandemic that all experts could reach agreement on. This lack of an agreed robust analytical basis for an alternative figure means that there is a legal risk in breaking with precedent in the measure of earnings used. I am quite sure that we will wish to discuss this further between the Bill’s stages—and we will.
My noble friend Lady Altmann has been a great advocate on the issue of pensioner poverty among women; in fact, she was referred to by the noble Lord, Lord Sikka. She asked about reforms to the state pension. These reforms have put measures in place to improve state pension outcomes for most women. More than 3 million women stand to receive an average of £550 more per year by 2030 as a result of the recent reforms. Women live longer than men on average and therefore receive pension payments for longer.
The noble Baroness, Lady Sherlock—she is a noble friend—was very animated in her contribution. Indeed, she was racing away; one of the things I have to work hard on is keeping up with her. We might have a chat about that another time. She asked whether wage increases are racing against inflation, am I correct? The response is that wages are increasing at 8.3% while inflation is at 3.3%, so wages are much higher. I am sure the noble Baroness will give me a list.
My noble friend Lady Noakes raised the issue of relative versus absolute poverty. The Government believe that absolute poverty is a better measure of living standards than relative poverty, which can provide counterintuitive results. The absolute poverty line moves with inflation so provides a better measure of how the income of pensioners compares with the actual cost of living.
My noble friends Lady Altmann and Lord Flight, and the noble Baronesses, Lady Drake and Lady Janke, asked about state pension comparisons with EU countries and others. This comparison is misleading due to differences in the pension systems. There are many factors to take into account, including different tax systems, different healthcare systems, different pension ages, the cost of living, access to occupational pensions and the availability of other social security benefits, as well as the provision of services and goods free to pensioners or at concessionary rates. In her contribution, the noble Baroness, Lady Janke, commented that other countries get them, so I suspect that this is another issue on the agenda for further discussion.
The noble Lord, Lord Davies, the noble Baroness, Lady Drake, and my noble friends Lady Altmann and Lady Stowell asked about the state pension versus the basic state pension. The new state pension system has  been designed so that no more money is being spent now than under the previous one, and care has been taken to ensure fairness to both groups while delivering a sustainable system for the future.
The noble Baroness, Lady Janke, and my noble friends Lady Stowell and Lady Stroud raised the issue of the UC taper rate. All I can say at the moment is that no decision has been taken on it.
The noble Baroness, Lady Smith, asked why we needed a Bill last year. The Social Security Administration Act 1992 does not refer to 2.5% and, for the benefits in this Bill, refers specifically to earnings growth. Without suspending that link, the state pension would have been frozen.
My noble friend Lady Stowell referred to the state pension for over-75s. We are committed to supporting all pensioners, including those over 75. We spend more than £129 billion—5.7% of GDP—on benefits for pensioners, which includes spending on the state pension. It is also supported by further measures for older people, including the provision of a free bus pass, free prescriptions, winter fuel payments and cold weather payments.
My noble friend Lord Flight asked for clarification on the year. It is the CPI in the year to September 2021, so it will be 2021 data—the most up-to-date data we can use—for our hard IT deadline in November.
Now we come on to the £20 uplift. Virtually all noble Lords made reference to this. To start with, I must confess and confirm again—I know that this will rankle—that this was a temporary measure. People knew when it started that it would end. We extended it for six months, and it was an important measure to help people facing the greatest financial disruption to get the support they needed. In line with other emergency support that we rolled out at pace, the uplift helped protect livelihoods through the worst of the pandemic. The support we put in place did what it was intended to do, despite the biggest recession in 300 years. It is worth noting that unemployment is much lower than feared, at 4.6%, and for some, household savings are £197 billion higher. The poorest working households were supported the most.
I have been asked to make reference to something mentioned by the noble Baroness, Lady Smith. No money is being taken away because we budgeted to spend a certain amount. The increase of 2.5% or the rate of inflation, whichever is higher, will be applied. I just want to give a reminder that the Lib Dem Minister at the time, Steve Webb, supported this in legislation.

Baroness Smith of Newnham: The Minister said that I was wrong and that no money has been taken away. I meant that it has been taken away from the individuals who benefited from the £20-a-week uplift but will now receive £20 a week less.

Baroness Stedman-Scott: I am sorry if I did not make that point clearly. I agree with the noble Baroness. People were told that it would be there for a period of time but was not for ever. We extended it because the pandemic went on; we have therefore paid up what we committed to pay. We did not say that we would give it for ever but then took it away.

Baroness Janke: I have a question. First, the Minister mentioned Sir Steve Webb, a former Minister. He too has pointed out that, since the Commons discussed this issue, the circumstances have changed and the indicators are that price rises will be much higher—something that the Minister did not address when she replied on that part of the Bill. Secondly, could the Minister write to me and tell me why exactly this Bill must have its Third Reading by November?

Baroness Stedman-Scott: I thank the noble Baroness for pointing out the clarification on her previous colleague, Steve Webb. I will certainly write to her and, later, I will come on to the issue of gaining Royal Assent by November.
Let me turn to my noble friends Lord Freud and Lady Stroud. I thank my noble friend Lord Freud for the passion and knowledge with which he speaks. I pay tribute to his achievements as Minister for Welfare Reform. I must, however, reiterate that the Bill does not concern benefits linked to prices, such as universal credit—but thank God we had universal credit when the pandemic came. We will be for ever in the noble Lord’s debt for making that happen. If I may say so, we will also be for ever in the debt of Baroness Hollis for the challenge that she provided in that; we all miss her.
In answer to my noble friend’s question, making the uplift payment permanent would cost £6 billion; this is the equivalent of adding 1p to the basic rate of income tax, in addition to an increase of 3p in fuel duty.
I have been really pleased to engage with my noble friend Lady Stroud. We have worked together on many projects, and I have found our conversations really useful and helpful. I know that she has strong views on the universal credit uplift, and that dialogue will continue. As I said, the Bill is very short and not concerned with benefits—I do not say that to annoy people—so the Government would not encourage her to try to draw a false link between the two separate matters. Again, the universal credit uplift was always intended to be temporary.
Lastly, I remind noble Lords of the need for Royal Assent by 22 November. This will allow the Secretary of State to conduct a statutory review using the new powers in time for the DWP to meet its hard deadline of 26 November for reprogramming its computer systems, to ensure that the new rates of benefit and pensions are payable from April 2022. Any delay to this Royal Assent deadline will result in the review being completed under existing legislation committing the Government to uprate by at least 8.3%, which would not be fair to the current and future generations of taxpayers.

Baroness Altmann: Can my noble friend clarify that the existing legislation permits the use of an alternative measure to 8.3%, and that the Secretary of State has discretion to choose to use a figure from the ONS that reflects the adjustment to earnings that the Bill is trying to ex out?

Baroness Stedman-Scott: My noble friend has made this point on a number of occasions; other noble Baronesses and noble Lords have too. Before I  bang a nail in, I think it is best that I write to noble Lords about that to make sure it is absolutely clear on that basis. I hope they will accept that.
My noble friends Lord Shinkwin and Lady Stroud raised the issue of a UC uplift impact assessment. The legislation enacting the temporary uplift, including its eventual removal, was approved by both Houses. No impact assessment was conducted when the uplift was introduced, as it was by law a temporary measure, as I have already said. No assessment was conducted on the reversion to the underlying rates of universal credit.
Do I have only 20 minutes for this? No? Okay, I am in charge. We will not be here for another half an hour. I want to pay respect to everybody, but I certainly do not want to abuse the House’s good will.
I hope the noble Lord, Lord Sikka, will take this in the spirit in which it is meant: I thank him for the master class in economics. I hope the Chancellor will read Hansard, and I am sure he will be in touch if he wants to take it further.

Lord Sikka: I thank the Minister. I do not know what the tuition fee would be or whether it would have gone up by then. Can she please explain why the £37 billion surplus on the National Insurance Fund account is not being used to pay even £8 billion or £10 billion in extra pensions?

Baroness Stedman-Scott: This is a pretty challenging question, and I do not know. I will go away and find out, write to the noble Lord and place a copy in the Library.
I will stop soon, but I want to come back to my noble friend Lord Shinkwin and the disability Green Paper. This issue is not in the scope of the Bill, as he will know. I assure him that I will raise his concerns with my ministerial colleagues. We have been blessed with the appointment of Chloe Smith. I have talked to her about my noble friend and I know she will meet him—because there will be trouble if she does not.
Without being disrespectful to anybody else, I would like to hold a further briefing and answer all the unanswered questions. I hugely appreciate the time and intent of all noble Lords, and I commend the Bill to the House.
Bill read a second time and committed to a Committee of the Whole House.

Critical Benchmarks (References and Administrators’ Liability) Bill [HL]
 - Second Reading

Lord Agnew of Oulton: Moved by Lord Agnew of Oulton
That the Bill be now read a second time.

Lord Agnew of Oulton: My Lords, through this Bill, the Government are supporting the transition away from Libor by providing further legal certainty for contracts that rely on Libor past the end of this year.
This Bill builds on the Financial Services Act 2021, which provided the Financial Conduct Authority with powers to effectively oversee the cessation of a critical benchmark in a manner that protects consumers and minimises disruption to financial markets. In particular, it draws on the work and engagement of my noble friends Lady Noakes and Lord Blackwell, who proposed amendments to that Act which are similar to the provisions in this Bill. I thank them for their constructive engagement on this issue.
I will first take a few minutes to put the Bill in context and to explain the connection to the Act passed by Parliament earlier this year. A benchmark is an index in a wide range of markets to help set prices, measure performance or establish what is payable in financial contracts. Libor is one such benchmark. It seeks to measure the cost that banks pay to borrow from each other in different currencies and over various time periods. It is calculated using data submitted by a panel of large banks to Libor’s administrator, the IBA.
Libor is used in a huge volume and variety of contracts, including in derivatives markets, mortgages, consumer loans, structured products, money market instruments and fixed income products. For example, a simple loan contract may say that the interest payable is Libor plus 2%. In this example, Libor represents the cost to the lender of getting access to the money to lend it out, and the 2% represents the additional risk to the lender associated with making the loan.
Libor was designated as a critical benchmark. This reflects the fact that it is systemically important. Libor is referenced in approximately $300 trillion of financial contracts globally but, from the end of this year, the FCA has said it is clear that Libor will no longer represent the interbank lending market it seeks to.
There is significant history to this. As many will remember, in 2012 it emerged that the Libor benchmark was being manipulated for financial gain. Following the subsequent Wheatley review, Libor came under the jurisdiction of the FCA in 2013. Significant improvements to the regulation and governance of Libor have been made since the Libor scandal. However, in 2014 the G20’s Financial Stability Board declared that the continued use of these kind of rates, including Libor, represented a potentially serious source of systemic risk. The FSB said that financial markets should voluntarily transition towards the use of more robust and sustainable alternatives.
This is because Libor has become increasingly reliant on expert judgments rather than real transaction data, due to the structural decline in the frequency of banks borrowing from each other through the unsecured wholesale lending market. The market that the benchmark seeks to measure increasingly no longer exists. This underscores the fundamental need to transition away from Libor.
Since the FSB’s recommendation, the Government, the FCA and the Bank of England have worked together to support a market-led transition away from use of the Libor benchmark. Primarily, they have pushed contract holders to voluntarily move to robust alternatives before the end of this year, in accordance with guidance from the FCA and the Bank of England.  The vast majority of contracts are expected to make this transition away from Libor without any government intervention. We expect 97% of all sterling Libor-referencing derivatives to have transitioned by the end of the year.
However, despite this extensive work and progress, there remains a category of contracts that face significant contractual barriers to moving away from Libor by the end of this year. The measures in the Financial Services Act 2021 sought to provide a safety net for these “tough legacy” contracts. Through the Act, the Government granted the FCA powers to “designate” a critical benchmark if it determines that the benchmark no longer accurately represents what it seeks to measure. The Act also provided the FCA with powers to require the administrator of such a designated benchmark to continue to publish it and to change how the benchmark is calculated.
In the case of Libor, the FCA has announced that it will use these powers to compel the continued publication of Libor using a revised methodology, referred to as “synthetic Libor”. The FCA has done this so that these tough legacy contracts can continue to function. They will have a Libor rate to refer to in its synthetic form, providing for the benchmark to cease in an orderly manner. It is important to emphasise that this synthetic rate is a temporary safety net for those legacy contracts that have not been able to move away from Libor in time for year end. It is not intended to replace Libor in the long term.
The Bill is vital to support the use of the synthetic rate. Clause 1 provides explicitly that Libor-referencing contracts can rely on synthetic Libor. This is covered in the new Articles 23FA and 23FB. Specifically, where the FCA imposes a change in how the benchmark is determined, such as a synthetic methodology, the Bill is clear that references to the benchmark in contracts also include the benchmark in its synthetic form. In the case of Libor wind-down, this means that where a contract says “Libor”, that should be read as referring to synthetic Libor. The effect of that is to provide legal certainty for those contracts that now reference synthetic Libor.
The Bill also provides a narrow and targeted immunity for the administrator of the critical benchmark for action it is required to take by the FCA. This includes where it is required to change how a critical benchmark is determined, such as a change in the benchmark’s methodology. This will protect the administrator from unmerited and vexatious legal claims. The Government have done this in the narrowest way possible. This does not protect the administrator in any area where they act with discretion. It protects the administrator only to the extent that it is acting purely on a direction from the FCA. It also does not in any way change the ability to challenge the FCA; its decisions on setting a synthetic methodology are subject to challenge on the usual public law grounds.
The Bill reaffirms the Government’s commitment to protecting and promoting the UK’s financial services sector. As the global home of Libor, having a clear legal framework and process in place for the Libor wind-down will further underpin our position as a global financial hub. However, I understand that some  are concerned that the synthetic methodology may result in a rate higher than the current Libor rate. That is not an issue for the Bill, which does not seek to instruct the FCA on how this synthetic rate should be constructed. That role has already been delegated to the FCA under the Financial Services Act 2021.
It is appropriate that the FCA takes these technical decisions. Indeed, our regulatory system often sees independent bodies empowered to produce calculations which reflect and influence economic reality, such as the Bank of England setting interest rates. It is vital that the FCA is able to create the methodology free of political interference.
I understand concerns about the possible retail impacts of Libor transition and would like to try to address these. First, I remind noble Lords that Libor is primarily the preserve of sophisticated financial operators, not retail investors. The vast majority of Libor contracts are derivatives. These are sophisticated financial products and 95% of these will transition away from Libor voluntarily.
Secondly, synthetic Libor is a last resort. The regulators have been working with the market to encourage operators to move to alternative rates for several years. The vast majority of contracts will not need to use this synthetic rate at all. Thirdly, the FCA’s approach is entirely in line with the global consensus among industry and regulators internationally.
However, I am sympathetic to concerns raised by some noble Lords about the impact this could have on some mortgage holders. I remind noble Lords that the Financial Services Act 2021 allows the FCA to impose a synthetic methodology only if it considers it desirable to do so to protect consumers or to protect and enhance the integrity of the UK’s financial system. The FCA’s proposals have been approved by its statutory consumer panel.
The FCA’s synthetic rate seeks to provide a reasonable and fair approximation of what Libor would have been had it continued to be based on panel bank contributions, while removing a major factor in the volatility of the rate. This is to the benefit of mortgage holders and other retail borrowers, who will no longer be exposed to perceived changes in bank creditworthiness or liquidity conditions in wholesale funding markets.
Today’s Libor rate is at historic lows, but it can fluctuate significantly. Three-month sterling Libor has varied from 0.28% in September 2017 to 0.92% at the end of December 2019 and is now 0.09%. The FCA’s synthetic methodology will protect contract holders from these large swings. We do not know precisely what the difference between synthetic Libor on 4 January 2022 and panel bank Libor on 31 December 2021 will be. We can reasonably expect that it will remain at a historic low when the synthetic methodology is imposed and that contracts referring to this rate will be protected from large swings in the Libor rate.
Finally, only a relatively small number of mortgages use Libor in the UK—around 200,000 out of some 11 million. It is much more usual for a mortgage to reference the Bank of England base rate. The FCA estimates that only around half of these 200,000 mortgages are residential; the rest are buy-to-let mortgages. The  FCA expects that the majority of these mortgages will transition away from Libor before the end of the year and so never use the synthetic rate.
Customers holding Libor-referencing mortgages should speak to their lender to switch to an alternative rate. The FCA does not expect firms’ transition efforts to result in worse customer outcomes than would be achieved through synthetic Libor, given the clear market consensus on fair replacement rates that has been established in the market for some time. The FCA would pay close attention to any evidence or feedback suggesting the contrary and take the necessary action to intervene.
The approach the FCA has taken produces a fair approximation of the Libor rate and is the best thing for any consumers or businesses which will need to rely on this rate. The alternative is having no rate at all or being put on an unsuitable fallback rate, which may well be designed for a different situation, such as a short-term problem with publishing Libor.
The Bill supports the wind-down process. It ensures that contracts remain unaffected by the Libor transition if they are not able to move to alternative rates in time. The Government have carefully considered responses to their consultation and the complex range of contracts which reference critical benchmarks. The FCA has confirmed the process to wind down Libor by the end of this year. The Government will continue to engage with Parliament with a view to securing passage ahead of the end of the year.
I hope that, having provided the House with the background to the Bill, an explanation of its provisions and an update on the broader work being undertaken by regulators on the Libor transition, we can debate the provisions in the Bill in a constructive manner and push forward this vital legislation. I beg to move.

Lord Sharkey: My Lords, I thank the Minister, the Economic Secretary to the Treasury and their teams for their engagement with us on this short but complex Bill. The input from the Ministers and their teams has unravelled a lot of that complexity and answered a lot of questions. We broadly support the Bill.
The need to replace Libor has been well flagged. As the Minister has noted, the FSB made it clear in 2014 that the continued use of Libor represented a potentially serious systemic risk. It made this judgement in response to cases of what it described as “attempted manipulation” of the rate
“and declining liquidity in key interbank unsecured funding markets.”
The imminent end of Libor has already been well flagged, at least to major players. Ideally, the Ibors would be replaced by risk-free rates, such as SONIA, but it has been obvious for some time that there would be existing, continuing contracts that would be unable to transition easily or in a timely fashion—or, perhaps, at all—to the new RFRs.
As the Minister has explained, the provisions of this Bill enable the FCA to address the problem. It gives powers to the FCA to allow, for some as yet unspecified categories of tough legacy contracts, continued use of synthetic Libor after the demise of the index at  the end of this year. The Bill also provides some narrowly drawn legal protections for the administrators of the synthetic Libor.
It is worth noting that the Bill does not include in its scope the synthetic Libor mechanism itself. There has been no parliamentary scrutiny of this mechanism. Consultation is not the same as, or equivalent to, parliamentary scrutiny. It is regrettable that Parliament has not had the opportunity to scrutinise this mechanism and its likely consequences, or any alternative mechanisms, such as the linear transition mechanism mentioned in paragraph 28 of the FCA’s recent technical note. There is a very large gap in our scrutiny system where financial affairs are concerned. The exercise of unscrutinised power by the FCA illustrates the need, once again, for a dedicated financial affairs select committee.
The measures in the Bill are intended to produce an orderly end to the existing regime and to provide a temporary bridge for some exceptional contracts. I have been impressed by the depth and quality of the work that has gone into preparing for transition and for creating the synthetic Libor. I have no issues with the fundamentals of the proposals, but some questions remain, and I would welcome the Minister’s clarifications.
The first question is to do with timing. Why was the end of this year chosen as the cut-off point? What discussions have we had with the US authorities about synchronising our moves away from Libor? Would it not have been better and simpler to act together and give more time for contracts to be transitioned, reducing the number of those moving to a synthetic Libor substitute.
My second question is also to do with timing—in this case, the timing of the formal announcement of who may use synthetic Libor. As things stand, the FCA’s consultation on the matter does not close until the end of this month. Only after that will the FCA issue a formal policy paper setting out the rules for qualifying for the use of the synthetic Libor. That is two months before the general expiry of Libor—not long to prepare if the rules do not allow your contract to qualify. Why has it been left this late?
When I asked the Minister about this in our meeting on Monday, he pointed to the fact that the enabling powers in the Financial Services Act 2021 became active only in April. But we had been preparing this transition for long before that, and the Government cannot seriously have expected their proposals to have been overturned during the passage of that Bill. Surely, it would have been possible to at least have the consultation ready to go as soon as the Act was passed, or even to consult as it was being debated—something the Government have done in the past. I know the FCA has signalled that the rules may allow wide but time-limited scope, but can the Minister reassure us that it does not foresee the disruptive exclusion of significant tough legacy contracts from the synthetic regime?
My next question is about the absence of safe harbour provisions. The narrow immunity on offer to the administrator may not, of course, prevent an outbreak of lawsuits. New York has dealt with this problem more comprehensively than we propose to do by adopting safe harbour provisions.
During the Report stage of the Financial Services Bill 2021, the noble Baroness, Lady Noakes, who I am glad to see in her place, proposed, in Amendment 6, such a safe harbour provision. The Government rejected the amendment, and the Minister explained why, saying:
“Amendment 6 may seem to solve those problems by seeking to give the Treasury powers to make regulations providing for contract continuity and safe harbour through secondary legislation, having had more time to consider these matters. The Government are of the view that, if legislation were needed to address this, it should be in the form of primary legislation. Further legislation providing for safe harbour, as proposed by these amendments, while consistent with the provisions already in the Bill, may be considered by some parties to represent a significant intervention in the contractual rights of parties using critical benchmarks. Primary legislation would therefore be preferable, to provide all parties with an appropriate level of transparency. Crucially, given the volume and value of contracts impacted, making such a provision in secondary legislation would carry a risk of legal challenge to the Government’s exercise of their powers. Any such challenge could bring further uncertainty and disruption, which is precisely what these amendments are seeking to mitigate.”—[Official Report, 24/3/21; col. 923.]
That was not a rebuttal of the notion of safe harbour. It was simply an explanation of why primary legislation would be a better way of achieving it. Well, we are now discussing primary legislation. Did we consider using safe harbour provisions similar to those adopted in New York and, if we did, why we chose not to use them? Did Her Majesty’s Government identify any benefits provided by the safe harbour approach that would not accrue under our scheme?
Next, there is the issue of a possible cliff edge at the end of the year. In the first Peers’ meeting with the Economic Secretary to the Treasury, we were told that there may be a difference of 10 basis points between the old Libor and the first runs of the new synthetic Libor. The very helpful FCA technical note on the end of year impact says in paragraph 23:
“We do not know precisely or with certainty what the difference between synthetic LIBOR on 4 January 2022 and panel bank LIBOR on 31 December 2021 will be.”
Does this not raise the possibility of significant market disturbances and disputes? The mechanisms proposed for generating synthetic Libor outputs have been published by the FCA in its draft notice of 29 September. Can the Minister say whether these mechanisms for determining synthetic Libor can be adjusted to produce a smoother, less step-like transition, if this looks to be desirable? If that cannot be done, can the Minister say what reactions he expects in the markets as a result of a variation of 10 basis points or more at the beginning of the new year. Can he also say what a realistic upper band of this differential might be?
I have one further question: will there be some contracts which will never be able, or will decline, to transition to RFRs? If there are, what characterises them? Do we have any idea of how many there might be in number and value, and what does the FCA propose to do about them?
I realise that I have asked a lot of questions. I entirely understand if the Minister does not have time to answer them all this evening, but I would be very grateful for a written response before we get to Committee.

Baroness Noakes: My Lords, I declare my interests as recorded in the register and, in particular, my holdings in financial services companies, which could be affected by the Bill.
I welcome the Bill and thank the Government for responding to the very real issues that are raised by tough legacy contracts. I also thank the Minister and my honourable friend the Economic Secretary for arranging two very helpful briefing meetings for Peers. Before getting into my speech, I must say how much I am looking forward to the maiden speech of my noble friend Lord Altrincham, and I welcome him to the select group of noble Lords who speak on financial services matters.
When we considered the Financial Services Act 2021 earlier this year, I argued that we needed provisions beyond those contained in that Act to deal with tough legacy contracts. I tabled some amendments in Committee and on Report, none of which found favour with the Government. It was plain to me that legislation was needed to avoid disruption in financial markets, and I warned about the clock ticking down towards 31 December this year, when Libor ceases. I therefore rejoice that the Government have now seen the light, and I hope that this Bill can be speedily dealt with both here and in the other place.
In the previous Bill, I argued for two measures to deal with the tough legacy problem: a contract continuity provision and a safe harbour provision, as referred to by the noble Lord, Lord Sharkey. This is what the financial services industry said that it needed and what the responses to the Treasury’s consultation showed. The Bill provides for contract continuity but not safe harbour. If nothing else, that is regrettable for being out of line with the approach already taken under New York law, where a safe harbour has been provided.
As I understand it, the Government believe that they have drafted the continuity provisions in such a way that a safe harbour is not needed. The theory is that the continuity provided by the Bill should be watertight against any actions that arise from transition to synthetic Libor. There are concerns about this. Experience shows that legal challenges can and do emerge to legal drafting, even if that drafting is initially believed to be bombproof—whether in contract or statute law. No self-respecting lawyer would claim otherwise.
There is clearly a risk of litigation by parties who think that they have suffered from the transition to synthetic Libor or who could gain from being released from a contract. The risk of successful litigation may not be high, but there is a risk. This could be disruptive and costly. I hope that my noble friend agrees that it is important to avoid this.
The scale of the risk may well be difficult to quantify and will, of course, depend on the number and type of contracts that actually transition to synthetic Libor at the end of this year. There will, however, be clear winners and losers. As the noble Lord, Lord Sharkey, said, the new, synthetic rate will probably be higher than Libor—possibly by about 10 basis points. I spent some of our recent Recess acquiring new knowledge about the overnight interest swap rate and the ISDA  five-year historic median credit adjustment spread. If nothing else, this shows that your Lordships’ House is a wonderful place for lifelong learning. Ten basis points may not be much on a retail mortgage but, on a large nominal in a commercial transaction, it could be a pretty big deal.
Last week, the Financial Conduct Authority provided us with a very helpful note on synthetic Libor. I fully accept that the FCA has consulted extensively and that there is general market acceptance that the methodology is the best that could be achieved for Libor-like rates. Nevertheless, there has not been a debate about the quantum of the difference between Libor and synthetic Libor and its impact on litigation risk. A question about quantum was tabled last week at a webinar arranged for the financial services industry together with the Treasury and the FCA, but that question was not selected for answer. This will be in the public domain at some stage and I believe it could increase the likelihood of litigation.
An important risk mitigant will be the clarity of the government messaging in relation to the impact of this Bill. I hope that my noble friend the Minister can be crystal clear on three points. First, the Government need to intend for the drafting of Clause 1 to have the same substantive effect as the New York legislation. In other words, the Government’s clear intention should be that the continuity drafting must be watertight in relation to litigation targeting the transition to the use of synthetic Libor.
Secondly, the Government need to be very clear that the ISDA credit adjustment spread—the main source of the difference between Libor and synthetic Libor—is set by the FCA, that it may well result in higher rates, and that it is out of the control of the parties to the contract.
Thirdly, with the strong encouragement of the Treasury, the FCA and the PRA, the industry has been actively transitioning contracts by agreement, generally using SONIA—with or without a credit adjustment spread or base rate. The FCA briefing note to which I referred said that they regarded these formulations as fair. Do the Government agree that these rates are fair, given that they may not be the same as the synthetic rates to be used for tough legacy contracts? It is just as important to avoid litigation on contracts transitioned by agreement as it is on those designated tough legacy contracts, especially as the draft scope from the FCA will potentially put a very large number of outstanding contracts into synthetic Libor for 2022 at least.
I will touch briefly on the fallback provisions in new Article 23FB. It is certainly welcome that contractually agreed fallbacks can continue, particularly where they have been negotiated in the clear knowledge that Libor would be ceasing. However, many contracts and other documents have fallback language which would be problematic if they were saved by Article 23FB. The risk-free rate working group, which has done splendid work on Libor during the last couple of years, highlighted formulations which used “cost of funds” as being problematic. The term sounds more straightforward than it is. There is no agreed method of computation for standard market practice. It is thus a rich source of potential disagreement between parties and, hence, of  lengthy and costly litigation, which I am sure the Government will want to avoid. Can my noble friend say whether any contracts with cost of funds fallbacks are likely to stand, or is it expected that they will all be transitioned to synthetic Libor? The latter is clearly preferable, given the difficulty of applying that particular fallback.
Lastly, I want to raise the 10-year time limit on the use of synthetic Libor under the 2021 Act. The New York legislation does not have a time limit. I understand that it is widely believed that there will be a rump of contracts which will go beyond this period. Do the Government accept that some contracts will need a solution beyond 2031? If so, when do they expect to deal with these? I hope that we can avoid the brinkmanship that has characterised the timing of this Bill and some of the FCA decisions in the run-up to the deadline at the end of this year.
In conclusion, despite the concerns I have outlined, I am a big supporter of this Bill. I hope that it will become law as soon as possible and give the market the certainty it needs.

Lord Altrincham: My Lords, I am honoured to follow the noble Baroness and to speak on this Bill and in this House for the first time. I declare my interest as a director of the Co-operative Bank in Manchester.
I should start with thanks for the welcome that I have received from all sides of the House and for the help from Black Rod, the clerks, the doorkeepers, security staff, technology staff and the Library, and for the welcome in the dining room. In working for this House, each of them is working for our country. I also thank my two mentors, my noble friends Lord Leigh of Hurley and Lord Parkinson of Whitley Bay, and my two noble friends Lord Sandhurst and Lord Leicester who were elected alongside me in June—the first time that three Peers have joined this House by election since 1816.
It is with sadness that I stand before noble Lords because my election follows the death of my father, Anthony, and of his brother, John. The Altrincham title was given to my grandfather, Edward Grigg, in 1945, for service in the wartime Government. It passed to John Grigg, who then disclaimed the title for life in 1963, events reconstructed in season 2 of “The Crown”. Although I have lost my father, my mother, Eliane, is in good health. She was a child in occupied France and watched the RAF bombardment in 1944 from the air raid shelter in their garden.
With an English father and a French mother, I was lucky in my career. At 30, I was at Goldman Sachs and married to Rachel Kelly, a journalist on the Times, and we had our first child. The following year, 1997, I stood for Parliament in the general election. We had a privileged life, but we did not have privileged health. We were combining Goldman Sachs, the Times, the general election and little children. Later that summer, Rachel got very sick very quickly and we thought she was having a heart attack. I helped her into an ambulance and she was taken away to a psychiatric hospital, which was obviously quite a surprise. Then I learned that she had depression, and this was more or less the first time that I had ever heard of depression. That has  been something important to our family ever since. Rachel recovered—she was sick for about a year—and went on to write about her experience in her bestselling book Black Rainbow, and subsequent books Walking on Sunshine and Singing in the Rain. I did not stand for Parliament again, but stayed at Goldman Sachs for another 10 years and then went on to work at Credit Suisse.
Libor was the bedrock of the financial system throughout this whole period but was shaken by the financial crisis. I saw the events of October 2008 as an investment banker working for the Labour Government at the time. We advised the Government on the rescue recapitalisations of both the Royal Bank of Scotland and Lloyds Banking Group—the so-called drive-by shooting. On the weekend of Saturday 11 October 2008, and on behalf of Her Majesty’s Treasury, we took control of the Royal Bank of Scotland; the recapitalisations took place on this day, 13 October 2008. I also worked on the bank asset protection scheme through that period, which, as noble Lords might recall, was the insurance scheme put in place behind the banking system. The learnings around that are still very relevant to understanding sovereign credit today.
Libor was put under great strain during this period, as was subsequently revealed in 2012. Quite apart from the integrity issues, the market needed a new rate. The changeover to SONIA, as noble Lords will know, is now substantially done and this Bill picks up the residual issues that arise around the year end. SONIA, meanwhile, is correlated to base rate, is less volatile than Libor and tracks short-dated gilts very closely.
The Government would not normally interfere in contract, so this Bill is extraordinarily unusual for doing just that, but in the absence of what we are agreeing to today there would be extensive room for dispute over what to do at the year end. The Bill neatly reinterprets Libor as synthetic Libor, as a direct intervention. However Libor is expressed in a contract, it would just be reinterpreted as synthetic Libor, which is a very neat solution, albeit highly unusual under English law. That should be effective in closing off most areas of litigation. It is also worth adding, as the noble Lord mentioned, that the FCA has still not defined which regulated loans will go into this safety net. It is now relatively urgent for the FCA to decide on that because the loans are not defined in this legislation.
The Bill is a reminder of the importance of financial services to London, and maybe also a reminder of the importance of financial services, regulation and law to this country. The Bill also, in a sense, closes a chapter from 2008.
This is an important day for me. I first stood for Parliament 24 years ago. It is very meaningful for me to be here today. I still believe that government and regulation can be a force for good. I look forward to working with noble Lords and for this House for many years to come.

Lord Moylan: My Lords, in following my noble friend Lord Altrincham and his maiden speech, I start by saying that I think it is the first time since I came into your Lordships’ House a year ago that a  maiden speech has been delivered with members of the family present in person to hear it. I take that as a very encouraging sign for our return to normality and a sign of great confidence. I thought it worth mentioning.
There is another first going on at the moment. This is, as my noble friend explained, the first time since 1963 that an Altrincham has sat in your Lordships’ House. That was something of a vintage year for departures from your Lordships’ House: I note that another peerage is returning that has been absent since 1963, though on the opposite Benches. Who knows what fruit might yet be harvested from that vintage year?
My noble friend is a banker. It is very brave nowadays to say you are a banker, and he had the courage to confess that he has spent most of his life as an investment banker. He has advised Governments and major companies, and since then he has gone on to set up his own corporate finance firm. Unlike some bankers—in the context of this Bill, I think everyone will know what I mean—his reputation for integrity in the course of his career has not only emerged intact but, in fact, been enhanced.
However, my noble friend is more than simply a banker. As he said, he has a keen interest in mental health issues, arising from his own family’s experience. His wife Rachel’s books have brought consolation to countless readers suffering from depression and, indeed, quite a lot of joy to those not suffering from depression. They are rather good and useful books in their own right, I have found. My noble friend will use part of his time in your Lordships’ House to promote interest in and support for mental health problems. I am confident that, with his great gifts and broad sympathies, he will make a wonderful contribution to your Lordships’ House.
Turning briefly to the matter of the Bill, we have come today to bury Libor. Not many people know—perhaps there is no reason why they should—but I spent a number of years lecturing on financial services and capital markets, and Libor was the meat and drink of what I did. I rather feel that Libor is something of an old friend. I have listened and learned a great deal from speakers in this debate so far about the very fine technical points that are at issue and dealt with in this Bill, but I would feel bereft if an old friend such as Libor were to be buried without someone like me at least reminiscing, in a mournful and doleful tone, about its departure. My old friend will be greatly missed.
As my noble friend the Minister said in his letter circulated before the debate, this is the only critical benchmark left that is generated in London. The loss of that is a harm to the prestige of London as a financial centre. It also raises a very small question mark about the robust connection with the legal profession and the documentation of financial services transactions. It is one of the boasts of London as a financial centre that the documentation is done under English law. Part of that was that connection with Libor, and that is gone. I do not think we are advancing when we see the City of London—not just the financial side but the associated legal side—lose the only benchmark generated in London.
Who killed my old friend Libor? A certain number of people have suffered criminal convictions and that is part of the answer, but the suggestion was also made at the time that the Bank of England was reasonably aware of what was going on. That suggestion—I know I am straying a bit into the history of the matter—was of course robustly denied by the Bank, but in 2008 or thereabouts the Bank was trying to drive interest rates down for monetary-management reasons while a very uncertain market, faced with a great deal of risk, was trying to put interest rates up, and to some extent Libor was the victim crushed between those two forces. Of course, I have no reason to doubt the Bank of England’s denial of that allegation, but I am sure that in the course of time more will be learned—although I do not know if I will be alive when it is.
Could my old friend Libor none the less have been resuscitated? I think in fact he could have been. If our regulators had had more confidence and less fear, and if they had not had removed from them at the time their earlier obligation to maintain the competitiveness of the City of London as a financial centre, I think that, with imagination, something could have been done to retain a London-based benchmark.
Of course, it is all too late for that. We are here simply to invite in the undertakers, and there is no going back. However, I hope that my noble friend and the Government will learn at least one lesson from this: if we are to have, as I hope we will, a successful and indeed internationally dominant financial services sector in this country—with the benefit that flows from that to other professional services such as law, accountancy, and so forth—then we need to have a clear framework for regulators that directs them to support that competitiveness and encourage the success of the City of London. Regulation is not all about risk minimisation. After all, if one were to minimise risk utterly, there would be no banking—it is a risk business by definition.

Lord Blackwell: My Lords, I welcome my noble friend Lord Altrincham into the House. He brings huge expertise in financial services, which will be extraordinarily valuable.
Before I address the substance of the Bill, I should declare my interest, or at least my former interest, as the chairman of Lloyds Banking Group until the beginning of this year, and I confirm that I have no ongoing interests other than as a shareholder.
Like other noble Lords, I very much welcome the Bill. I add my thanks to the Minister and his honourable friend the Economic Secretary to the Treasury for their efforts in listening and responding to the concerns that industry and a number of us have raised. There has been widespread acceptance in the remarks made so far in this debate of the need to replace Libor, and of the importance of doing so in a way that both is fair and provides legal certainty. I will not go over those arguments again but, as the Minister recognised, despite the best efforts of banks and other institutions to migrate contracts, there are, I understand, currently some 55,000 sterling Libor contracts with a value of around £340 billion that are still unresolved. While I  hope the Minister and the FCA are right that most of those will be resolved by the year end, there are likely still to be a number left on Libor. Many of those will be individual mortgages and small business loans where the individual businesses or consumers simply have not responded to the offers made to them. However, there may also be some where the counterparty has deliberately withheld consent in order to achieve a better outcome.
As my noble friend the Minister has said, all of these are contracts that, under Libor regulations’ Article 23C, can be designated by the FCA as tough legacy contracts. Where they can then be mandated by the FCA for these contracts, references to Libor can continue—but, with the way that Libor is determined, replaced by a synthetic substitute, using the methodology that the FCA defines under Article 23D.
This methodology has been widely consulted on, and I am comfortable that it appears to be a sensible approach that will reduce some of the volatility that there has previously been in the market and that should provide a sensible outcome. Could the Minister confirm that this methodology—which, as he pointed out, the FCA, rather than he, is responsible for—is consistent with the internationally accepted methodology for Libor replacement and with the methodology that has been used by most commercial contracts so far in reaching voluntary agreement?
The reality is that there is no perfect substitute for the interest rate that might have prevailed under Libor, with the resultant risk that some counterparties might claim that the change negates their contracts or causes them losses. I welcome fact that the Bill provides the legislative underpinning to provide legal certainty that synthetic Libor should be recognised as a valid substitute for Libor in these legacy contracts.
The key provision is that this applies to contracts designated by the FCA, as covered by the legislation. As other noble Lords have pointed out, it is not yet clear what those contracts are, but my understanding is that this is expected to cover all outstanding contracts for a period of 12 months. To avoid further uncertainty, could the Minister, although he is not responsible for this, confirm that that is his expectation and that there is no intention to have a hard cut-off at 12 months or to exclude certain contracts from ongoing cover under these provisions at the end of 12 months? It would also be helpful if he could reconsider whether it is necessary to have a 10-year time limit for the use of synthetic Libor, given the tenure of some of those contracts.
As my noble friend Lady Noakes pointed out, the Government have decided not to include the other provision that they consulted on of a safe harbour against litigation, as a belt-and-braces measure to reinforce the legal certainty. I understand the reluctance to make provisions that might hinder legitimate claims of mis-selling, but I share the reservations that potential claims that run against the intention of this legislation may still be pursued and can be costly, even if they do not ultimately succeed. If the Government choose not to legislate for the safe harbour following these debates, it would be helpful if the Minister could put on the record that it should not be grounds for mis-selling  simply to claim that the provider did not communicate any potential weaknesses in Libor as a benchmark or did not envisage or provide for a replacement if Libor ceased.
In confirming the intent of this legislation, on which I acknowledge that my noble friend the Minister has said some very helpful words, it might also help if he could confirm on record the specific and very helpful wording set out in writing in paragraph 25 of the Explanatory Notes to the Bill, which do not form part of the legislation, as it stands. It says:
“The provisions … are … intended to ensure the application of a synthetic methodology … does not inadvertently give rise to breach of contract claims or provide a vehicle for one party to claim that the contract has been frustrated.”
I also ask Minister to consider whether, as another way to discourage vexatious claims, it would be helpful, as an exception to the normal rules, to publish the Government’s legal advice that has given them confidence that the legal certainty provided under this legislation is adequate to avoid potential unwarranted litigation risks.
I very much welcome this legislation. I will support it through the House, and I thank the Government for bringing it forward.

Baroness Kramer: My Lords, I begin by welcoming the noble Lord, Lord Altrincham, to the House. I think that is a maiden speech that we are all going to remember. We particularly look forward to hearing him speak on Treasury issues but also very much on mental health issues. If one had to pick two issues pertinent to our time, I would say that those must be the two. I very much welcome him but have to warn him that to go from being a banker to being a politician is to go from one much-despised profession to another. I hope he recognises that he is unlikely to have any better reception in public today than he did as his former self. We recognise his capacities and honestly and sincerely welcome him.
I join others in thanking the Minister and the Economic Secretary to the Treasury for the briefings that they provided to us and particularly for the meeting that many of us were able to participate in yesterday with the relevant officials from the Treasury and the FCA. I know that I felt a much greater peace of mind at the end of that meeting. It was extremely helpful to have that level of expertise and people who have been so engaged in the process brought into that meeting with Peers.
We have always supported the essential tenets of this Bill—immunity for the administrator, synthetic Libor and provision of legal certainty that legacy contracts will remain valid. We in no way wish to challenge that. However, I am very much with my noble friend Lord Sharkey on the questions that he raised—I am not going to repeat them as this House and the Minister will now be fully aware of them—and on the questions raised by the noble Baroness, Lady Noakes, and the noble Lord, Lord Blackwell. We have to have some constructive responses to those.
I want to pick up on two questions that have particularly exercised me, although that is not to say that they are more important than the other questions.  In a sense, both questions come down to the mechanism that the FCA has selected to determine synthetic Libor—how it determines the spread above the risk-free rate. As I say, I took a great deal of comfort from the conversation yesterday with the FCA but I think there must be some mechanism whereby this House should be able to scrutinise the process that leads to a mechanism of such significance. Again, it underscores the gap we have in making a regulator accountable to Parliament. I hope that the Minister will take that back. It is not a criticism of the regulator but points out the absence of an appropriate mechanism. We need to have that put in place.
My second concern has always been that cliff edge. On 31 December we will have a Libor rate created through the historic process and by the mechanism people expected to be used when they signed their various agreements. Then four days later synthetic Libor is likely to deliver a difference of something in the range of 10 basis points. I find that rather extraordinary. I hope it does not lead to the kinds of legal disputes that the noble Baroness, Lady Noakes, has indicated would be possible. I think it could. It also somewhat disturbs me that we have not found a better way to smooth that transition. Like others who have been bankers in this House, I suspect, I have fought hours through the night for one or two basis points; 10 basis points is such a significant differential. I am delighted if the financial services industry finds this entirely acceptable but I just wonder whether it will not be rather surprised when it actually sees the number.
One of my concerns has always been that that kind of gap as a result of two different approaches to creating a Libor benchmark also indicates the potential for various financial institutions to arbitrage and game in various ways because of the difference and the change. I have taken some reassurance from the FCA trying to explain that it does not think that small individuals will be the victims of any such gaming and arbitrage. I have concerns because loans to small businesses are not regulated and therefore the FCA’s ability to monitor them is very different from its ability to monitor loans to consumers. If it is the big boys all playing games with each other, I must admit my concerns are rather fewer, but I have concerns around that area.
I am going to close because so much of what has needed to be said has been said, but I want to pick up on the issue raised by the noble Lord, Lord Moylan. I, too, feel an incredible sadness in saying farewell to Libor. Back when I was in the United States, I spent more than 10 years structuring loans and a variety of transactions—some of the earliest swaps—around Libor, and I took great pride in a benchmark that was set in London not just for sterling but for every meaningful currency across the globe and all time zones. I confess the shock that I experienced, never having worked in the City of London, only in the United States in direct lending and structuring, to find that Libor had been manipulated, and so blatantly, by major financial institutions and that it was apparently well known to their chief executives.
I was on the Parliamentary Commission on Banking Standards. Those masters of the universe were very well aware of the manipulation that was going on and, frankly, the regulator was too weak or too deferential to intervene. It was a stain on London and on financial services in the UK and I am sad that that stain still overhangs this ending of Libor. I agree with the noble Lord, Lord Moylan, that there are consequences because of the loss of prestige and international standing that is attached to the disappearance of the role that London played in virtually every lending transaction across the globe. It is with sadness, and perhaps with a little bit of shame, that I stand here and speak to this Bill. We will support the Government, but we would like to see our questions answered, and we may press some of them when we get to Committee.

Lord Eatwell: My Lords, first, I declare an interest as a recent chairman of the Jersey Financial Services Commission and therefore a financial services regulator.
I begin by congratulating the noble Lord, Lord Altrincham, on his maiden speech and welcome him to the small club he sees around the Chamber of people who have an almost obsessive interest in the details of these financial matters. I hope he will continue to contribute to our proceedings on these matters. It is nice to grow the club a little.
I say to the Minister that I think that the very last sentence in the Bill has it wrong. It should say “This Act may be cited as the Critical Benchmarks (Inspired by Baroness Noakes) Act 2021.” I congratulate the noble Baroness, Lady Noakes, who brought forward these issues so strongly in the discussions in Committee on what is now the Financial Services Act 2021, on seeing that the important points that she made at that time have been noted and have been taken up to a considerable extent.
This is a Bill with but two substantial clauses, both of which are eminently sensible in the context of the complexities associated with Libor transition. But one of them, Clause 2, may well cause collateral damage. I will focus my remarks on Clause 2, but will first comment briefly on Clause 1. This is an entirely sensible clarification of the interpretation of references to a benchmark in a contract where the FCA seeks to replace Libor. The clause provides legal certainty in a variety of circumstances and is thus to be welcomed. Let us now turn to Clause 2.
The Libor story has, from the outset, been a story of the professional creation of risk. First, there was the scandalous gaming of Libor, which created market risks, which have been widely debated; now, there is the replacement of Libor, which itself creates risks because new benchmarks are untried, their relationship to events and financial markets is as yet untested, and the insertion of new benchmarks into existing contracts will be problematic and will typically result in revaluation of those contracts, resulting in gains for some and losses for others. Then there is the issue of timing, raising by the noble Lord, Lord Sharkey. Further, in those cases in which it is impossible to replace Libor, the imposition of a synthetic Libor will potentially  result in asset revaluation, again precipitating gains and losses. This replacement issue was referred to by the noble Baroness, Lady Kramer, who asked about the mechanism for how synthetic Libor is to be created and questioned the cliff edge. These are all risks which have been created by the replacement of Libor.
It is not just a question of the creation of risk; it is also a story of the transfer of risk from professionals who create it to others. And not just to fellow professionals who may lose out in traded positions but to firms of all sizes—small, medium and large—to municipalities and to ordinary people, typically via their pension funds or mortgage contracts. This transfer of risk is a serious market inefficiency; the risk is imposed on someone who had nothing to do with its creation. Losses are suffered because of the actions of others.
That is why, as a financial services regulator for many years, I am allergic to the awarding of legal immunity to those who create the risk. The existence of legal immunity not only allows the risk creator to escape scot-free but creates a moral hazard, because the creator of risk suffers none of the adverse consequences that stem from his or her actions. Because of that, there is an obvious incentive to create even greater risks. Equally abhorrent, the legal immunity provided leaves no possibility of redress for those who have suffered losses because of where the risk has ended up. Legal immunity is, therefore, in the words of 1066 and All That, “a Bad Thing”, to be introduced only in extremis. Indeed, this case is in extremis, but it has other aspects that I wish to refer to.
Clause 2 of the Bill creates a legal immunity. It would grant the administrator of a critical benchmark immunity in circumstances where the administrator acts in accordance with requirements imposed by the FCA. The situations in which this is anticipated to happen are quite abnormal, because they arise from the peculiar circumstances created by the demise of Libor and the complexities involved.
As we have heard, legal immunity is provided in circumstances in which, in a very limited number of cases—the so-called tough legacy contracts—it is not practicable to replace Libor as the contract benchmark and the FCA has decided to require the administrator of the benchmark to use or change the benchmark in a specific way, particularly using synthetic Libor. In other words, immunity is provided to eliminate the possibility that the administrator of the benchmark might be subject to legal action as a result of complying with statutory requirements imposed upon it by the FCA.
By the way, in parenthesis I should add that I think it entirely correct that the Bill does not extend the safe harbour to acts taken by an administrator on his or her own discretion.
So far so good: we would not expect someone to suffer claims for damages for doing what their regulator has instructed them to do. But other people are suffering losses as a result—perhaps small firms, perhaps pension funds, perhaps individual non-professional investors. What about them? Who should be liable? The noble Lord, Lord Agnew, referred to these people collectively as bringing forward “unmerited and vexatious claims”. How does he know they are unmerited and vexatious at this stage?
So, who is going to be liable? Since action has been dictated by the FCA, should the FCA be liable? Of course not, because as a regulator it already has legal immunity with respect to regulatory action, and that makes sense. The regulator is required to meet its statutory responsibilities, and it would be surely unreasonable for it to be subject to legal claims for doing what, by statute, it is required to do, so that would seem to be the end of the matter—hard luck on those who suffer losses. But I suggest that there are aspects of this case that make it rather different.
The transition from Libor, and the introduction of synthetic Libor, arise from the behaviour of those miscreants who, in 2012, were discovered to have gamed Libor. Those who may be suffering losses are doing so because of the ramifications of those illegal acts. Unfortunately, there is no prospect of redress from the miscreants, but the core issue remains: surely, it is unreasonable and unfair, in solving our problems, to shift risk on to retail customers. Why should they suffer loss as a result of the need to fix the system to prevent the repetition of illegal acts? I put it to the Minister that this is the sort of legislation that gives the financial services industry a bad name: it is always the retail customers who take the losses, not the professionals. How does he propose that those who suffer losses should be compensated—or is he happy to leave them to their fate?
I have worked as a financial services regulator for nearly 30 years. I thought myself unshockable, but I was shocked, as was the noble Baroness, Lady Kramer, by the revelations around the gaming of Libor. As the noble Lord, Lord Altrincham, said, Libor was the bedrock of the UK financial system. The noble Lord, Lord Moylan, referred to Libor as the meat and drink of financial services. I think all speakers recognised that serious injury was done to the reputation of UK financial services by those actions. This Bill is part of the effort to repair that injury. However, this cannot be done, it seems to me, when the Bill imposes unrecoverable losses on retail investors. I really feel that it is incumbent on the Minister to tell the House this evening how the Government intend, while offering legal immunity to the administrator, to offset this collateral damage.

Lord Agnew of Oulton: My Lords, I thank noble Lords for their detailed and collaborative contributions on this very technical Bill. I would particularly like to welcome and thank my noble friend Lord Altrincham for his excellent and personal maiden speech. I know that his experience in financial matters will be of great benefit to us all.
The Bill reinforces the provisions in the Financial Services Act 2021 that provide the FCA with powers to oversee the wind-down of a critical benchmark in a manner which protects consumers and minimises disruption in financial markets. In doing so, it provides key support to the Libor transition and market confidence.
I will try to address a number of the questions raised by noble Lords this evening, but I will write on the more technical ones on which I may not be able to come up with the answers immediately.
I start with the noble Lord, Lord Sharkey, and his concern about the late running of this, so to speak. I accept his point that work could possibly have been done before the Financial Services Act 2021 received Royal Assent. The FCA feels strongly that it needs to follow an orderly and sequenced process to consult first on the framework for decisions and then on the decisions themselves, but I accept that the timing will be tight.
The noble Lord, Lord Sharkey, also asked why this year is taken as the cut-off. This date was selected back in 2017 after engagement with panel banks, so it has been in the works for quite a long time and there has been time for the industry to plan for it. We have had very close engagement with the US and the timings are aligned. It has now said that the new use of US dollar Libor rate will stop at the end of this year, following supervisory guidance from the US and UK and other international authorities.
The noble Lord, Lord Sharkey, also asked about the mechanisms for the synthetic rate to be smoothed. The FCA has confirmed that that is the approach. The synthetic methodology is based on a broad global consensus and it would cause significant market disruption to change course at this point. It is not clear that that would deliver better outcomes for markets or consumers. As discussed at the briefing yesterday, the smoothing has been put in place taking the five-year median rate, but I can write with more detail if the noble Lord would like, as I accept that this is an important issue.
The noble Lord, Lord Sharkey, said he was worried about congestion at the end of the year. We have been clear that the active transition is the main mechanism; we have seen a large transition away from Libor over the last few months. I take my noble friend Lord Blackwell’s point that the latest data shows that some 55,000 contracts are still outstanding, but they are moving quickly. The FCA has taken on board market feedback on distinguishing between contracts that can be amended before the year end and those that cannot. Every step it is taking is to minimise disruption, in line with the objectives.
My noble friend Lady Noakes asked about the cost of funds fallbacks. This legislation provides certainty on how references to the Article 23A benchmark should be interpreted in contracts and other arrangements in which the FCA has exercised powers under the benchmarks regulation to require a change in the benchmark methodology. Where a contract or arrangement has a fallback that is triggered by the temporary or permanent unavailability of Libor, Article 23FA provides that the benchmark continues to be available and consequently that it does not cease to exist, be published or otherwise be made available. This means that the cost of funds fallbacks, which are generally triggered by the unavailability of the benchmark, will not be triggered.
My noble friends Lord Blackwell and Lady Noakes asked what happens after the proposed 10-year period. The legislative framework put in place in the Financial Services Act 2021 allows the FCA to support the orderly wind-down of the benchmark. Specifically, it allows the FCA to impose a synthetic methodology to provide for the continuity of a Libor setting for the  benefit of tough legacy contracts for up to 10 years. The Government will continue to work closely with the FCA and the Bank of England to support an orderly wind-down of Libor and will continue to monitor the risks in this area, given its systemically important role in the UK economy.
My noble friend Lord Blackwell asked about the shorter term, after a year. The benchmark regulation provides that the FCA can review the decision to compel continued publication of a synthetic benchmark after a year. The FCA has been clear about the expected direction of travel with regard to the sterling synthetic Libor rate and does not intend that it will cease automatically after a year.
The noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer, are concerned about FCA accountability and, linking to that, parliamentary oversight. The FCA must operate within the framework of statutory duties and powers agreed by Parliament. The FCA is also fully accountable to Parliament for how it discharges its statutory functions. This direct accountability to Parliament reflects the FCA’s statutory independence and the fact that it is solely responsible for everyday operational decisions, without government approval or direction, and so is primarily accountable for them. The legal framework ensures direct accountability of the FCA to Parliament, including through a requirement for it to produce annual reports and accounts which are laid before Parliament by the Treasury.
The FCA is subject to full audit by the NAO, which has the associated ability to launch value-for-money studies on the FCA. The FCA is subject to scrutiny from Select Committees. The Treasury is the FCA’s sponsor in government; it is responsible for the statutory framework of financial services regulation and for the continued effective operation of the FCA as part of that framework. The mechanisms for the FCA can be directly accountable to the Treasury. This includes direct controls over appointments to the FCA board and powers under the Financial Services Act 2012 to commission reviews.
The noble Lord, Lord Sharkey, and my noble friend Lady Noakes asked about safe harbour. The responses to the Treasury consultation earlier this year identified the risks that parties may look to contest the continued publication of synthetic Libor by its administrator, or to seek damages against the administrator. This risk might be heightened if other avenues of litigation are closed off to parties by the Bill.
Where the administrator of an Article 23A benchmark is subject to legal challenge for complying with statutory requirements imposed by the FCA under the benchmarks regulation, it could impose a significant unreasonable and unmerited burden on the administrator of an Article 23A benchmark. If faced with too much legal risk, the administrator may seek to resign from administering the benchmark, which in turn risks causing disruption. Such action could serve to erode parties’ confidence in using the benchmark, undermining the operation of the FCA’s powers to oversee an orderly wind-down of it.
My noble friend Lady Noakes also asked about alternative benchmarks. The focus of this legislation is on providing legal certainty regarding the operation of  the FCA’s powers to wind down this critical benchmark. Where contractual parties have acted in line with regulatory guidance to transition the contract to an alternative rate, the Government do not see that there is a need for further legislative clarity. The Government continue to encourage parties to contracts that reference Libor to transition those contracts to alternative benchmarks wherever possible, in accordance with regulatory guidance.
Several noble Lords, including my noble friend Lord Blackwell, asked about legal certainty. It is the Government’s view that it is appropriate to provide legal certainty as to how references to Libor should be interpreted in contracts or other arrangements, once the switch to the synthetic rate occurs. This legislation comprehensively addresses the risk of contractual claims relating to the exercise of the FCA’s powers to wind down a benchmark, as identified in response to the Treasury’s consultation on this matter.
It is important to stress how narrow the contractual continuity provision is. It does not protect the parties to the contract from all legal challenge. This would result in parties to those contracts not being able to challenge any element of that contract, and would be too broad. It simply specifies that where a contract references Libor, that should be read as referring to synthetic Libor. The effect of that is that legal claims cannot be brought on the basis that synthetic Libor is not included in the contract.
As the home jurisdiction of Libor’s administrator, the UK has a unique role to play in minimising financial stability risks and disruption to financial systems arising from the wind-down, both in the UK and globally. This plays to the comments made by several noble Lords in relation to London’s reputation as a financial centre and the unfortunate events that surrounded the problems with Libor 12 or more years ago.
In the UK framework, the FCA will be able to provide for the continuation of Libor settings under a synthetic methodology. Subject to the legislative framework in other jurisdictions, any change of methodology imposed by the FCA would flow through to global users of Libor contracts continuing to reference the rate. By taking this approach, the UK has provided a global solution rather than an approach that would have been effective only in the UK.
My noble friend Lord Blackwell asked about the methodology. Noble Lords will appreciate that setting this methodology is a responsibility that Parliament has granted to the operationally independent FCA,  within the parameters established by the recent Financial Services Act. However, the FCA has an overriding responsibility to act in the best interests of consumers in this country. It is also important to note that the FCA’s approach is in line with the global consensus.
As we all acknowledge, and as I said in my opening remarks, Libor is mostly used by sophisticated financial operators, not retail investors. We estimate that there are only around 200,000 mortgages left on Libor, with that number estimated to fall to somewhere between 50,000 and 100,000 in the next few months. The synthetic Libor rate is a last resort and regulators have been encouraging markets to move to alternative rates for some time.
I remind noble Lords that the Financial Services Act 2021 allows the FCA to impose a synthetic methodology only if it considers it desirable to do so to protect consumers or protect and enhance the integrity of the UK’s financial system. Furthermore, the synthetic rate seeks to provide a reasonable and fair approximation of Libor while removing a major factor in its volatility: the variable credit spread, which has often spiked in times of economic stress. Reducing volatility will benefit consumers who pay interest with reference to Libor.
I will write to the noble Lord, Lord Eatwell, on his specific points; I am afraid that I do not have that information to hand at the moment.
This Bill is vital to the protection of consumers and the integrity of UK markets. I would be happy to arrange another detailed technical session in a similar form to the two we have had so far, because I am aware of how technical this Bill is. I hope that we have noble Lords’ support.

Lord Tunnicliffe: My Lords, may I raise a bureaucratic point before the Minister sits down? He intends to put letters in the public domain through the medium of the Library. It would be convenient if he could simultaneously copy them to everybody who has participated in the debate and registered interested parties like me.

Lord Agnew of Oulton: I would be happy to do that. I am pleased to see the noble Lord, Lord Tunnicliffe, back here without Covid; we were worried that he might have had it. I will certainly do that.
Bill read a second time and committed to a Grand Committee.
House adjourned at 8.55 pm.